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Maryland Journal of International Law

Volume 8 | Issue 1 Article 3

The Euro-Siberian Gas Pipeline Dispute - ACompelling Case for the Adoption of JurisdictionalCodes of ConductPatrizio Merciai

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THE EURO-SIBERIAN GAS PIPELINE DISPUTE - ACOMPELLING CASE FOR THE ADOPTION OF JURISDICTIONAL

CODES OF CONDUCT

PATRIZIO MERCIAI*

I. INTRODUCTION

In 1981-1982, Western participation in the Euro-Siberian gas pipelineproject was subjected to United States foreign policy export controls, theextraterritorial reach of which was challenged by European countries asbeing at variance with international law. In response, many of these coun-tries sought to nullify the effects of these export controls through juridicalactions. Nonetheless, the dispute was not settled by juridical means. More-over, it has been widely publicized and might provide the necessary incen-tive to the countries involved to find a compromise between their increas-ingly divergent legal conceptions of jurisdiction in international law.

This article will review the main issues raised by the pipeline dispute,particularly the limits to jurisdictional claims, the legal means of blockingthem when excessive, and possible solutions for such conflicts. Special at-tention will be given to the position of subsidiaries of foreign corporationsand recipients of foreign technology. Before turning to such issues, it is nec-essary to expose the circumstances and the developments of the disputeitself.

II. THE SIBERIAN GAS PIPELINE PROJECT

The Euro-Siberian gas pipeline under construction,' officially called"Rossiya No. 6" by the Soviet Union, is part of a large-capacity, long-distance network originating from the natural gas fields of the Taz Penin-sula, in the Western Siberian region of Yamal, north of the Arctic Circle.Rossia No. 6 will ultimately consist of a double 56-inch wide, 4451 kilome-ter long pipeline joining Urengoi field to the border town of Uzhgorod,where it is to be connected with the MEGAL pipeline over Czechoslovakiato the West European gas network." One hundred and twenty-five compres-

* Lecturer, Graduate Institute of European Studies, University of Geneva. The views ex-

pressed in this article are those of the author, and do not necessarily represent those of theJournal.

1. For general sources see Bibliography at end of article.2. Staff of the Joint Economic Committee, Subcommittee on International Trade Finance

and Security Economics, 97th Cong., 1st Sess., Energy in Soviet Policy 84, 88, 94, 94 n.15(Comm. Print 1981) (Bresnick & Hardt, authors, Soviet Economic Policy Toward West Eu-

2 MD. JOURNAL OF INTERNATIONAL LAW & TRADE

sor stations, each capable of 16 to 25 Megawatt power, are needed to trans-port yearly 40-70 billion cubic meters of gas.'

Construction of a project of this size, in extremely adverse conditions,is a formidable task for the Soviet Union, to be rewarded with a 40 percentincrease of its overall gas production as soon as the new network is put intooperation, which should occur by 1990.4 The first phase of the project, forwhich the arrangements discussed in the article were made, includes con-struction of a single pipe, with 41 compressor stations, and its completion isscheduled for 1984-85. 5 The whole project represents a $15 billion invest-ment,6 but could earn more than $8 billion in convertible currencies perannum.

7

A. Western Participation

Although it would have been possible for the Soviet Union to rely ex-clusively on domestic capital and technology and build a scaled-down ver-sion of the project, with smaller compressors and pipe, resort to Western

rope) [hereinafter cited as Bresnick & Hardt]; Stern, Gas for Western Europe: Choices forthe 1990s, 36 WORLD TODAY 305, 305 (1982) [hereinafter cited as Stern, Choices]; Karr &Robinson, Soviet Gas: Risk or Reward? 4 THE WASH. QUARTERLY No. 4 at 3, 4; Painton,Imbroglio Over a Pipeline, TIME, Aug. 2, 1982, at 30, 31. A particularly significant branchline will be built over Czech and East German territory to supply West Berlin. See J. STERN,SOVIET NATURAL GAS DEVELOPMENT TO 1990: THE IMPLICATIONS FOR THE CMEA AND THE

WEST 102 (1980) [hereinafter cited as J. STERN].- 3. Bresnick & Hardt, supra note 2, at 96; Painton, supra note 2, at 30-31; Stern, Spec-

ters and Pipe Dreams, 48 FOREIGN POL'Y 21, 23 (1982) [hereinafter cited as Stern, Specters];Ball, The Case Against Sanctions, N.Y. Times, Sept. 12, 1982, §6 (Magazine), at 63, 118.

These 40 billion cubic meters amount to 1.7 quadrillion B.T.U.s or are equivalent to 292million bbl. of crude oil. For BCM-0.9 mt. oil conversion factor, see Stern, Choices, supra note2, at 307 n.8.

4. See Bresnick & Hardt, supra note 2, at 88.5. TIME, Jan. 23, 1984, at 22 (doubts arise in West as to the possibility of completion

before the end of 1985 with only one or two of the forty-one stations currently on line). Al-though the first phase would involve construction of a single pipe, this one could carry morethan half the final capacity because the completed pipeline will be operated below the maxi-mum pressure.

6. Hearings on United States Assertion of Extraterritoriality with Respect to the Soviet-European Gas Pipeline before the Subcommittee on International Economic Policy of theSenate Committee on Foreign Relations, 97th Cong., 2d Sess. 21 (1982) [hereinafter cited asHearings]; see also TIME, Jan. 23, 1984, at 22 (citing a higher cost estimate of $18 billion).

7. This figure is based on the mid-1982 reference price of $4.75 per million B.T.U.s and avolume of 40 billion cubic meters delivered. See Bresnick & Hardt, supra note 2, at 97-98($10 billion estimate by 1990); and Hearings, supra note 6, at 15, 21 ($4-$7 billion estimateby 1990); but see Stern, Specters, supra note 3, at 23 (discussing recent scaled down deliveryestimates of 21 BCM per year, resulting in hard currency earnings of $3.8 billion per year in1982 dollars).

[Vol. 8

JURISDICTIONAL CODES OF CONDUCT

finance, and supplies will cut costs considerably, through a faster pace ofconstruction and greater reliability, and provide higher performance. More-over, it would have been extremely difficult for the Soviet Union to secureEuropean credits and gas purchases without conceding countertrade oppor-tunities by importing construction machinery, steel pipe, compressors andmonitoring equipment.' Thus, the Soviet Union arranged to buy Westerncapital goods on Western credit, and to pay for the goods in gas supplies.

While such a trade pattern is not uncommon in East-West relations,the Euro-Siberian project is impressive by virtue of its size and the numberof participating countries.' Also noteworthy is the politically sensitive con-text of East-West trade in energy 0 and technology1 in which the projecthas progressed. On the one hand, Western European countries are exces-sively dependent on Middle East oil supplies. On the other hand, the UnitedStates has strongly opposed West European cooperation in several Sovietprojects related to energy transportation over the past thirty years." In ad-

8. For references to the stimulus that the Soviet pipeline represents to West Europeanheavy industrial employment, see Karr & Robinson, supra note 2, at 5, 7; Stern, Choices,supra note 2, at 312; Ball, supra note 3, at 119; Stern, Specters, supra note 3, at 30-31. Itmay be observed yet again that while the U.S. would deny Western Europe this shot-in-the-arm for industrial employment, it wavered not at all in its ongoing wheat deals with theUSSR. Ball, at 120; Hearings, supra note 6, at 45; Stern, Specters, supra note 3, at 35-36.

9. See Karr & Robinson, supra note 2, at 4; Bresnick & Hardt, supra note 2, at 94 (theproject is known as the "largest project in recorded history"). The ten nations to receive gasthrough the Yamal pipeline are: Federal Republic of Germany, Italy, Austria, France,Belgium, Switzerland, Netherlands, Sweden, Finland, Greece. Bresnick & Hardt, at 96; Karr& Robinson, at 5.

10. Staff of the Joint Economic Committee, Subcommittee on International Trade Fi-nance and Security Economics, 97th Cong., ist Sess., Energy in Soviet Policy 3, 4, 7 (Comm.Print 1981); Bresnick & Hardt, supra note 2, at 85, 86, 98, 99; Stern, Choices, supra note 2,at 305, 309, 310, 312; Karr & Robinson, supra note 2, at 4; Gustafson, Energy and the SovietBloc, 6 INT'L. SECUITY No. 3 at 65 (1982).

11. Bucy, Technology Transfer and East West Trade: A Reappraisal, 5 INT'L SECURITY

No. 3 at 132, 133, 135-41 (1981); see generally, Bucy, On Strategic Technology Transfer inthe Soviet Union, I INT'L SECURITY No. 4 at 25 (1977). For an outline of the related "dualuse" of technology issue, see infra note 16, Note, Dresser Industries: The Failure of ForeignPolicy Trade Controls Under the Export Administration Act, 8 MD. J. INT'L L. & TRADE 122(1984).

12. In 1963, the Consultative Group of NATO member countries embargoed West Ger-man steel pipes to be fitted into the Druzhba USSR-CMEA oil pipeline, with the sole effect ofboosting third-party exports and accelerating the acquisition of Soviet expertise in domesticproduction. See 1982-83 EUR. PARL. Doc. (No. 1-83/82) 15 (H. J. Seeler, rapporteur, 1982);Ball, The Case Against Sanctions, supra note 3, at 63, 120.

When the Carter Administration first placed export controls on oil and gas equipment tothe Soviet Union in 1978, the Caterpillar Tractor Company lost its 85% share of the Soviettractor and pipelayer market to its chief competitor Komatsu of Japan. Hearings, supra note6. at 7-8.

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dition, East-West relations were deteriorating at the time the Siberian pro-ject was launched."8 Western Europe has nevertheless accepted the Siberianproject, 14 after balancing the political risks against the strategical necessityof diversifying its energy supplies. 15

West German wide-diameter pipes have been used in recent years for the Soyuz pipeline,the gas equivalent of the Druzhba oil system, with renewed criticism from the United States,see Stern, supra note 2, at 77-78.

The United States itself, however, contemplated purchasing liquefied natural gas (LNG)from the Soviet Union under the so-called "North Star" project. See 1982-83 EUR. PARL.Doc. (No. 1-83/82) 15-16 (H. J. Seeler, rapporteur, 1982); Ball, supra note 3, at 120.

For an analysis of negative Congressional reaction to the Nixon Administration's NorthStar proposal, see Bresnick & Hardt, supra note 2, at 98-100; see generally, J. KOSNIK, NAT-URAL GAS IMPORTS FROM THE SOVIET UNION (1975).

13. Stern, Specters, supra note 2, at 22-23.14. The first contract was concluded by Austria in 1968. J. STERN, supra note 2, at 102.

The Federal Republic of Germany began contracting for Soviet gas in 1970. Id. at 100.France and Italy have followed its example and are all the more pleased to diversify fromAlgerian and Libyan supplies that have proven to be unreliable in recent years. See Ball, supranote 3, at 118-19. For a discussion of the role of Algerian gas exports to Europe, see Stem,Choices, supra note 2, at 308-14.

15. This cost-benefit analysis necessarily yields a different conclusion when engaged in bythe Europeans rather than by the United States. For a pointed discussion of the historic differ-ence between U.S. and European understandings of d6tente, see Ball, supra note 3, at 119.European Energy Demand:

While the U.S. imports 50% of its energy supplies and has significant reserves, WesternEurope imports 75% of its energy supplies. Over the past decade European use of natural gasin particular has boomed from 80 billion cubic meters in 1970 to 245 billion cubic meters in1980. See Stern, Choices, supra note 2, at 306 (220 BCM use in 1980). The increased con-sumption is in part a result of the exploitation of Dutch, particularly the Groningen, fields, andof British offshore fields, which have by and large reached and passed peak production. SeeStem, Choices, supra note 2, at 307-09; Karr & Robinson, supra note 2, at 8.

Imports of natural gas must play a major role in diversifying from crude oil. The fournon-EEC suppliers of natural gas to Europe are Norway, Algeria, Libya, and the USSR.Stem, Choices, supra note 2, at 306. Algeria and Libya, however, are also OPEC oil producerswith a history of unreliable delivery, hence the European interest in Soviet energy developmentprojects. Stern, Choices, supra note 2, at 311; Karr & Robinson, supra note 2, at 9. Norway,for economic, political, and geological reasons, may not be able to take up the slack caused bythe decline in Dutch production. Stem, Choices, supra note 2, at 307; Stem, Specters, supranote 3, at 28-30.

Soviet gas imports supplied both under earlier contracts and through the new pipelinewould provide 20% of EEC natural gas consumption by 1990, or 4% of the EEC's overallenergy requirements. Stern, Choices, supra note 2, at 309; Bresnick & Hardt, supra note 2, at96. Stern, Specters, supra note 3, at 23-24. According to 1982 forecasts by the Commission ofthe European Communities, Algeria and Norway would provide another 12% each of gas sup-plies. See Stern, Choices, supra note 2, at 309 (assigning 9% and 10% shares to Algeria andNorway respectively). Libya is expected to provide 4% of gas supplies.

No single EEC member country would be dependent on the Soviet Union for more than33% of its gas consumption. See Painton, supra note 2, at 31 (30% as to Western Europe on

[Vol. 8


B. Contracts Related to the Pipeline

Although the construction and exploitation of the Euro-Siberian pipe-

average). One commentator cautions, however, that figures depend on variables: overall energyconsumption patterns, and success in arranging alternatives. Stern, Specters, supra note 3, at24. Some regions on the trunk pipeline route, such as Bavaria, may reach much higher figures.See Stern, Choices, supra note 2, at 310 (estimating Bavarian dependence at 85%); Karr &Robinson, supra note 2, at 8. An intensification of security measures to temper increased de-pendence on Soviet gas is one of the major concerns of these European nations. Such measuresinclude interconnection of national networks in order to even out shortfalls or cutoffs in onearea, strategic stockpiling of methane in liquefied or gaseous form (reinjected into depletedfields), and the use of convertible burners. Stern, Choices, supra note 2, at 310; Karr &Robinson, supra note 2, at 9. Stern, Specters, supra note 3, at 24-25.U.S. Objections and European Justifications:

This situation has met with differing reactions within the United States:Without regard to how we arrived at this point, the bottom line is that we did not per-suade them of our position. We should be trying to assist the Europeans in the develop-ment of effective contingency plans to allow substitutions and alternative energy suppliesso as to diminish the opportunities for the Soviet Union to make use of any sort of gasweapon to exert political pressure.

Hearings, supra note 6, at 14-15 (Statement of Arthur T. Downey, On Behalf of the Chamberof Commerce of the United States.)

On these flexibility-in-allocation issues, see generally, Commission of the European Com-munity, Communication from the Commission to the Council Concerning Natural Gas, COM(81) 530 final (Oct. 1, 1981). Commission of the European Community, Communicationsfrom the Commission to the Council Concerning Measures to Enhance the Security of GasSupplies to the Community, COM (82) 45 final (Feb. 15, 1982); Commission of the EuropeanCommunity, Communication from the Commission to the Council on Natural Gas Supplies,COM (82) 653 final (Oct. 15, 1982); Directorate-General on Energy, Commission of the Eu-ropean Community Report on the search for and exploitation of liquid gaseous hydrocarbonsin the mainlands and off-shore under the jurisdiction of the Community, EC Doc. XVII/360/76 (1976).

Nevertheless, the U.S. Administration considered it advisable to divert European nationsfrom the pipeline project because its unprecedented size would intensify Soviet-European rela-tions. See Bresnick & Hardt, supra note 2, at 94, 98. In brief, the reasons for opposing thisform of heightened Soviet-European interdependence were as follows:

1). Western Europe would be dependent on the USSR for strategic energy supplies and forcontinued credit repayment. Stern, Choices, supra note 2, at 312; Hearings, supra note 6, at13; J. HARDT, D. GOLD, F. MIKO & S. SLOAN, SOVIET GAS PIPELINE: U.S. SANCTIONS AND

THEIR IMPLICATIONS (Library of Congress, Congressional Research Service, No. IPO 219S,1982) [hereinafter cited as J. HARDT]; Ball, supra note 3, at 118; Painton, supra note 2, at 31.Such dependence could undermine the strength of the Western alliance:

With reduced U.S. security involvement and increased Soviet economic penetration inEurope, some perceive the political and diplomatic influence of the USSR to be greatlyenhanced. The extension of Soviet gas lines from the Soviet border areas to France in the1980s may make an economically unified Gaullist-type Europe "from Brest to Brest" areality, but with the dominant role played by Moscow rather than Paris or other WesternEuropean capitals. As viewed by some, the economic leverage of the Soviet Union might

1984)


at some point be used to encourage the removal of all Western export controls and toinfluence the extension of Western preferential credits and other trade concessions. Cou-pled with the perceived shift in the military balance to the Warsaw Pact, this trend mightlead to Soviet dominance of Europe.

Bresnick & Hardt, supra note 2, at 91.The U.S. commitment to greater Western unity in this area was evidenced by last ditch

offers to the EEC to turn to U.S. coal, synfuels, and nuclear power as alternative energysupplies, the so-called "Rashish Raid" of fall, 1981. Stern, Specters, supra note 3, at 27; seealso Karr & Robinson, supra note 2, at 9; J. HARDT & K. TOMLINSON, SOVIET GAS PIPELINE:U.S. OPTIONS 3 (Library of Congress Congressional Research Service Major Issue System,Issue Brief No. IB8 2020, 1982) [hereinafter cited as J. HARDT & K. TOMLINSON]; Ball,supra note 3, at 63; N.Y. Times, Feb. 26, 1982, at A3, col. 1.

European policy-makers and public opinion would answer the preceding arguments in thisway. What is an acceptable degree of Soviet-European interdependence is a question pecu-liarly within the realm of European sovereign nations' judgment:

Having been at a conference in Munich embracing all European countries, having talkedto the representatives, defense ministers, etc., of every one of those countries, knowing ofthe absolute conviction that they have to go ahead with this Trans-Siberian pipeline, Imust say that they have listened to us. They are well aware that they are vulnerable.They are well aware that the spigot of the pipeline could be turned off, but they are notgoing to allow themselves to get into a position of overdependence. They have decidedthat they have the sovereign right to make this decision, and they will make it. . . .Theyare fine friends and allies, but they have decided that in their judgment on balance it isbest for them go ahead with this.

Hearings, supra note 6, at 4-5 (statement of Senator Charles H. Percy, CommitteeChairman).

As to the energy dependence issue, security measures to enhance flexible allocation of gaswithin the EEC, are the best remedy. The Soviet Union, moreover, is considered to be a morereliable source of gas than Algeria, Libya, and Qatar. Ball, supra note 3, at 119. As to depen-dence for credit repayment, it is true that it could cause a form of dependence for the creditor,not just for the debtor, in the same way that trade makes the seller dependent on the pur-chaser, as in the grain trade with the Soviet Union. The question is whether in the circum-stances, the project produces overdependence:

Europeans might also argue that Yamburg, the European version of the earlier "NorthStar" proposal promoted by Richard Nixon and Peter Peterson in 1972-74, is a muchsounder credit risk and more secure source of supply than "North Star" would have beento the U.S. The cost to the Soviet Union of not meeting repayments of delivery commit-ments from Yamburg would be substantial. Examination of the Eleventh Year Plan(1981-85) may illustrate how reliant the USSR now is on a continuing and expandingsupply of technology and equipment from the West. These technology imports cannot berepaid by export earnings from nonenergy exports and oil sales, so expanded gas salesand Western credit facilities will continue to be crucial to trade with the West. TheSoviet Union might, at any point, risk the cost of technology trade and credit cutoff andthe attendant increase in the economic and political costs by gas delivery cutoffs or acredit default. The question is would the cost of that action be too high as viewed bySoviet leaders?

Bresnick & Hardt, supra note 2, at 98.Many argue that the dependence cuts both ways, in light of the USSR's "three disastrous

harvests, a hard currency crisis in Eastern Europe, and a continuing need for technology and

[Vol. 8


equipment imports. Stern, Specters, supra note 3, at 26; see also Painton, supra note 2,at 31.

2). Hard currency earnings from the pipeline would enable the Soviet Union to obtain theequivalent value in advanced Western technology to enhance further its military capability.Hearings, supra note 6, at 13; Stern, Specters, supra note 3, at 21; Painton, supra note 2, at31.

The scope of this article cannot include the dual use issue, that is, the question of whetherthe oil and gas production equipment provided by Europe to the Soviet Union to build thepipeline is in and of itself "advanced Western technology" capable of being put to military use,and therefore the proper subject of unilateral and multilateral "national security" export con-trols. For several sources, see infra note 16. For detailed discussion see Note, supra note 11.

In response, opponents argue that hard currency earnings should first be discounted by thecost of building the pipeline. See supra note 7; Hearings, supra note 6, at 21-22.

Although Europe has granted concessionary rates of 7.8% on the financing arrangements,recipients of the gas will pay prices lower than the current French-Algerian LNG contractprice. See Stern, Choices, supra note 2, at 312; Stern, Specters, supra note 3, at 30; Hearings,supra note 6, at 22, 27. Secondly, the Soviet Union must use hard currency on its huge grainimport requirements, estimated in 1982 at $6-8 billion. Third, recent estimates place the earn-ings from gas sales much lower than first expected. See Stern, Specters, supra note 3, at 23.Moreover, European energy demand has decreased significantly since the gas supply contractswere signed. TIME, Jan. 23, 1984, at 22. Finally, if and when hard currency earnings fromSoviet gas exports replace and then surpass those presently made from declining oil exports,Western producers of advanced technology must come to terms with deciding what to sell andwhat not to sell, regardless of the depth of the buyer's pocket. See Hearings, at 22; see alsoBresnick & Hardt, supra note 2, at 97 (discussing the expected shift in the Soviet oil-gasearnings ratio, from a very low gas position in 1980 of $1.5 billion as compared to $11.5 billionfor oil, to more than'a reversal by the end of the decade).

3). Advanced technology would be made available to the East without adequate safeguards. TheU.S. previously stressed the importance of developing a common Western policy on restrictingenergy equipment exports. These efforts at the Ottawa and Versailles summit meetings wereunsuccessful. J. HARDT, supra, at 1; N.Y. Times, Nov. 15, 1982, at A10; for the results of theVersailles summit, see also N.Y. Times, Nov. 14, 1982, at 25, col. 1.

In response, as to releasing advanced technology to the Soviet Union, without adequatesafeguards, the dual use issue again arises. It is by no means clear that the energy equipmentembodies unique high technology convertible to military use. Hearings, supra note 6, at 24.See also Ball, supra note 3, at 118 (assigns little credibility to such "rationalization"). It isimportant to note that the foreign policy export controls, and not the national security exportcontrols, were invoked under the Export Administration Act to restrict the pipeline project.Most significantly, were the dual use risk found to be real, it can be argued that the method ofminimizing such risk should be one that unifies the Western Alliance rather than wrenching itapart, once sovereign nations have decided that it is necessary to take this risk. See sourcescited in notes 11, and 16, and Note, supra note 11.

Finally, as for the effect on non-military imports, it is by no means clear who would gainfrom an aggravation of Soviet economic difficulties in the present state of world affairs. Seee.g., Ball, supra note 3, at 118.

In addition to these ongoing reasons for American opposition to the project, with theimposition of martial law in Poland on December 13, 1981, the U.S. Administration seized on

19841


line represent a significant intensification of East-West economic relations,"no treaty on international cooperation has been concluded to minimize thesetensions. Nor have the scores of contracts between Soviet State agenciesand foreign banks and enterprises been integrated under a frameworkagreement. In order to secure more favorable terms than would have beenpossible in multilateral talks, the Soviet Union insisted on contracting forloans, 17 imports of capital goods, and gas exports 8 on a bilateral basis. Ma-

a final justification. See Ball, supra note 3, at 118.Nor should we - as the White House now appears to be doing - brandish the threat ofsuch economic warfare in an effort to force our allies to punish the Soviet Union econom-ically in some other way, on the bizarre pretense that that would somehow alleviate pres-sure on the Poles .....[Moreover], . . . no one has convincingly shown that depriving Moscow of $1 billion inforeign exchange will force it to spend $1 billion less on weapons .... Moreover, underthe Soviet system, the claim of the military sector on the total resource pie is determinedfar less by the magnitude of the pie than by the political clout of the military leadershipand its ability to play on the primordial Russian fear of encirclement."

Id.16. It should be noted that two thirds of the West German (as well as Japanese) exports

to Eastern Europe, including the USSR, consist of capital goods and steel, and one third ofimports are fuel supplies; on the other hand, two-thirds of U.S. exports to Eastern Europe arefoodstuffs and raw materials, and only one sixth of U.S. exports consist of fuel (mainly petro-leum products). Stankovsky, Trade and Credit Relations between East and West, 18 SOVIET& EAST. EUROPE FOREIGN TRADE 3, 14, 20 (1982). For example, in 1982, four-fifths of U.S.-Soviet trade was comprised of grain and agricultural products. N.Y. Times, May 9, 1983, atAl, col. 2; see also N.Y. Times, Nov. 16, 1982, at D6.

17. A large number of West European banks, grouped in consortia on a national basis,will provide the Soviet Union with government guaranteed loans at a concessionary rate of 8-12% in most cases. See Karr & Robinson, supra note 2, at 6. Ball, supra note 3, at 63.

The nonconcessionary rate for five year loans to the Soviet Union was 12.15-12.40% inJuly 1982, according to the international guidelines for the use of subsidized export credits,and the real cost of such credits might have been higher in several lending countries con-cerned. Financial Times, Sept. 28, 1982, at 18, col. 1. Thus, part of the cost had to be borneby Western governments, which chose not to align the interest rates for pipeline loans in ex-change for price moderation in Soviet gas supplies. See also Stem, Specters, supra note 3, at30-31 (gives the concessionary rate as 7.8%). Cf. Painton, supra note 2, at 31 (gives 15% asthe going rate in August 1982).

The duration of these credits is usually five years but unguaranteed repayment loans arealready agreed upon. The sum total of all loans may approximate $6 billion, of which thelargest part is tied up in the purchase of capital goods in each of the lending countries. SeeMaechling, The Pipeline Embargo: Reagan's Off Base, N.Y. Times, Aug. 8, 1982, J4, at E19.West German firms have equipment supplies contracts for over $2 billion, France and Italy formore than $1 billion each, British enterprises account for approximately $0.7 billion.

18. It had been agreed in 1982 that Ruhrgas AG of West Germany would receive 10.5billion cubic meters every year, and West Berlin another 0.7 billion; Gaz de France 8 billionand the Italian SNAM 7 billion. More than 3 billion cubic meters could be shared byBelgium, the Netherlands, Austria, and Switzerland. All these countries being connected to

[Vol. 8


jor contracts were concluded between September and December 1981, andin July 1982, while several other talks were still in progress. Final consider-ations are the subcontracts for equipment supplies and the possible realloca-tion of gas purchases between European countries.Capital Goods

The primary United States contractors involved were the CaterpillarTractor Company 9 and Fiat-Allis Construction Machinery, Inc., a subsidi-ary of the Italian group Fiat S.p.A., as well as the General Electric Com-pany,20 which has developed advanced technology for the rotors to bemounted in compressor stations. Among the key European contractors isMannesmann AG, a large West German metal manufacturer, which enjoysa virtual monopoly over the wide-diameter pipes needed for the project."'Half of the compressor stations have been contracted to Nuovo PignoneS.p.A., a subsidiary of the Italian state agency ENI; the other half has beencontracted jointly to Creusot-Loire, a nationalized French group, and toMannesmann-Anlagenbau AG.'1

These firms subcontracted the supply of turbines to AEG-Kanis

the continental network, they might arrange, as is common practice, for resale of Siberian gasto each other. However, the downward trend in oil prices and better diversification of energysupplies have recently encouraged West European countries to scale down their plannedpurchases to the agreed floor value (6.4 billion cubic meters in the Gaz de France contract, forinstance). Journal de Gen6ve, May 30, 1984, at 3.

Danish and British connection to the existing network is strongly advocated by the Euro-pean Community. See Stern, Choices, supra note 2, at 309. The resulting enhanced flexibilitycould allow for greater security, which in turn could relieve member countries from the need touse natural gas for electricity production and optimize use of energy resources, pursuant to ECCouncil Directive No. 75/404/EEC of Feb. 13, 1975, 18 O.J. EUR. COMM., (No. L 178) (July9, 1975). See Hearings, supra note 6, at 7-12; Bresnick & Hardt, supra note 2, at 97; Stern,Specters, supra note 3, at 31; J. HARDT & K. TOMLINSON, supra note 15, at 13.

The price paid to the Soviet Union will be indexed to the price of supplies from othercountries and to that of crude oil. It is expected to be higher than that of EEC gas, but lowerthan Norwegian, Algerian, or Libyan current prices.

The base price of Siberian gas as of July 1, 1982 was $4.75 at the West German borderand $4.65 at the Italian border. Dutch supplies from Groningen cost $4.50 or less, but Alge-rian LNG shipped to France was priced at $5.12 on the same date. Estimated floor prices bymid-1984 are $5.50 for Siberian gas and almost $6 for Algerian LNG, see Financial Times,Sept. 3, 1982, at 11, col. 4; Sept. 28, 1982, at 1, col. 7; Sept. 29, 1982, at 16, col. 1. (All pricesgiven per million B.T.U.s; a one-dollar price differential is equivalent to a $5.80 change in theprice of one barrel of crude oil.)

19. See Hearings, supra note 6, at 7-12; Bresnick & Hardt, supra note 2, at 97; Stern,Specters, supra note 3, at 31; J. HARDT & K. TOMUNSON, supra note 15, at 13.

20. Bresnick & Hardt, supra note 2, at 97; N.Y. Times, Nov. 15, 1982, at A10.21. See Bresnick & Hardt, supra note 2, at 97; Stern, Specters, supra note 3, at 30.22. See Stern, Specters, supra note 3, at 30; Painton, supra note 2, at 31; J. HARDT & K.

TOMLINSON, supra note 15, at 14.

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Turbinenfabrik G.m.b.H., a subsidiary of the West German AEG-Tele-funken, currently under receivership; to John Brown Engineering, of Glas-gow, which belongs to John Brown & Company;28 and to Dresser (France)SA, ' a wholly-owned subsidiary of Dresser Industries, Inc., of Dallas. Themonitoring system of the pipeline was contracted to a French State-ownedfirm, Thomson-CSF. All these contracts represent shipments of approxi-mately $2.5 billion for pipe to build the first of the double trunk line, and$2 billion or more for other equipment needed for this first phase.

Dresser (France) is the largest but not the only foreign-owned subsidi-ary of a U.S. corporation involved in the pipeline contracts. United Statesparents control such subcontractors as Rockwell-Valves SA in France, andSensor Nederland BV, the Dutch subsidiary of Geosource, Inc., of Houston.British subsidiaries of U.S. corporations include Andrew Antenna Systems,Ltd., Baker Oil Tools (United Kingdom) Ltd., Walter Kidde Co., andSmith International (North Sea) Ltd.

Other firms are recipients of American technology. General Electricrotors were to be fitted to turbines provided by AEG-Kanis, John BrownEngineering and Nuovo Pignone.2 Alsthom-Atlantique, a French firm con-trolled by the nationalized CGE group, holds a license from General Elec-tric for the manufacture of spare rotors. In addition, Creusot-Loire holdslicenses for cooling and filtering devices from the U.S. firm, Cooper Indus-tries, Inc.2 These, and other smaller suppliers, rely on American technol-ogy to fulfill their contracts.27

III. THE PIPELINE DISPUTE

The Soviet pipeline dispute arose when the United States imposedtrade controls on pipeline-related technology in response to Soviet activityin Poland.28 The embargo, generally viewed as short-sighted by West Euro-pean countries, caused a major crisis in Euro-American relations. 9 The cri-

23. See Maechling, supra note 17; Stem, Specters, supra note 3, at 30.24. See Brief for the Movant, at 4. In the Matter of Dresser (France) S.A., Case No. 632

(Motion to Vacate Temporary Denial of Export Privileges and Memorandum in Support) U.S.Department of Commerce, I.T.A. (August 27, 1982).

25. J. HARDT & K. TOMLINSON, supra note 15, at 13.26. See Bresnick & Hardt, supra note 2, at 97.27. See N.Y. Times, Nov. 15, 1982, at At0.28. See sources cited infra at note 34; 47 Fed. Reg. 141 (Jan. 5, 1982) ("repression" in

Poland refers to the imposition of martial law).29. See Hearings, supra note 6, at 1-3, 14-15, 38, 50; Ball, supra note 3, at 119; Ellicott,

Trends in Export Control Regulation, 38 Bus. LAW. 533, 552 (1983). See generally, DoesMr. Reagan's Writ Run in Europe? 19 COMMON MKT. L. REV. 497 (1982); Painton, supranote 2.

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sis occurred in part because the Europeans did not perceive a link betweenWestern foreign policy goals and the measures propounded by the U.S. Eu-ropean countries -refused a request by the United States to take part inpolitically motivated economic sanctions which were likely to be, and havesince proved to be, counterproductive." The legal dispute arose when theUnited States attempted to dispense with the collaboration of its Europeanallies and enforce the trade controls abroad. This article will deal only withthe international law aspects of this affair and not with the domestic, politi-cal and strategic issues.

A. United States Action

United States concern with West European participation in the Sibe-rian pipeline project was expressed at the Ottawa summit meeting of theseven major industrialized countries in July of 1981, 31 but this did not pre-vent European firms from concluding decisive contracts, with their respec-tive governments' approval, in the following autumn. The imposition ofmartial law in Poland on December 13, 1981, however, represented, in theReagan Administration's view, a development that should be responded toby the imposition of economic sanctions against Poland and the SovietUnion.8 ' Among the measures announced December 29, 1981, against the

30. See N.Y. Times, May 9, 1983, at D3 (a Congressional Study by the Office of Tech-nology Assessment concludes that the Soviet Union may well have benefitted from the publicdisplay of Western disunity and that the embargo was, at the very best, "inconclusive.") CfBall, supra note 3, at 120.

America cannot afford such conflict with its trading partners. Our large and embarrass-ing foreign-trade surplus of the postwar years has now been replaced by a troublesomedeficit. As our new Secretary of State, George P. Shultz, wrote three years ago, we nolonger have the luxury to indulge in "vigorous and flamboyantly administered initiativethat uses foreign trade as a tactical instrument of foreign policy."

For a general discussion of the inefficacy of economic sanctions, see M. DoxEY, ECONOMIC

SANCTIONS AND INTERNATIONAL ENFORCEMENT 125 (2d ed. 1980); R. RENWICK, ECONOMIC

SANCTIONS (1981) (discussion of the imposition of economic sanctions on Rhodesia (nowZimbabwe) and Italy during the Abyssinian crisis, concludes that such sanctions are worth thecosts only when vigorously enforced and unanimously applied); Bingham & Johnson, A Ra-tional Approach to Export Controls, 56 FOREIGN AFr. 894 (1979) (addressing the tensionbetween the need to correct a trade deficit with security and policy reasons for export controls,particularly in the context of East-West trade); Neff, The Law of Economic Coercion: Lessonsfrom the Past and Indications of the Future, 20 COLUM. J. TRANSNAT'L L. 411 (1981) (dis-cussing legitimacy of economic sanctions in history and competing characterizations of suchsanctions as governmental economic actions and as international legal means of promotinginternational order).

31. See Ball, supra note 3, at 63.32. See 82 DEP'T. ST. BULL. No. 2059 at 1 (Feb. 1982); see also Leich, Contemporary

Practice of the United States Relating to International Law, 76 AM. J. INT'L L. 374, 379

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latter was the expansion of export controls under the Export AdministrationAct of 197988 to include commodities and technical data related to oil andgas transportation." These measures, effective December 30, 1981, sus-pended all licensing for the export of these items, thereby putting the itemsunder embargo.

The European Community decided, at the instigation of the UnitedStates, to curtail its imports from the Soviet Union,"' but took no measureregarding the gas pipeline. Governments of the countries involved informedcontractors that they had no intention of interfering with the project. TheU.S. embargo did, however, jeopardize the continuous flow of supplies anddata to subsidiaries and licensees of American firms.

Faced with the prospect of having the pipeline construction proceeddespite the sanctions and the loss of American contracts, the U.S. Adminis-tration attempted to block European shipments. Amendments to regulationspromulgated under the Export Administration Act extended jurisdiction tosubsidiaries of the United States-based corporations and technology alreadylicensed and transferred abroad, 6 thus purporting to subject these firmsand property to export controls.

These measures were announced on June 18, 1982, and made effectiveas of June 22.3' This was shortly after the Versailles summit meeting,

(1982) (discussing President Reagan's December 31, 1981 request to Poland to honor interna-tional agreements on human rights as a condition to not imposing sanctions and the sanctionsfinally applied).

33. 50 U.S.C. app. §§ 2401-2410 (Supp. III 1979), amended by the Export Administra-tion Amendment Act of 1981, 50 U.S.C. app. §§ 2401-2420 (Supp. V 1982). The E.A.A. wasto expire on March 30, 1984. President Reagan, however, extended the effect of the E.A.A. inExec. Order No. 12,470, 49 Fed. Reg. 13,099 (1984). The legal issues raised by this Order arebeyond the scope of this paper. On the Export Administration Act of 1979 generally, seeEllicott, supra note 29.

34. 47 Fed. Reg. 141-45 (Jan. 5, 1982), amending 15 C.F.R. pts. 379, 385, 390, 399(1981) (Export Administration Regulations), amended June 22, 1982, repealed Nov. 17, 1982;see infra note 59. See 82 DEP'T. ST. BULL. No. 2059, at 8 (Feb. 1982); Leich, supra note 32,at 384.

35. Regulation No. 596/82/EEC of March 15, 1982, amending the Import Arrange-ments for Certain Products Originating in the USSR, 25 O.J. EUR. CoMm. (No. L72) 15(March 16, 1982), effective March 16 to Dec. 31, 1982.

36. 47 Fed. Reg. 27,250-52 (June 24, 1982), amending 15 C.F.R. pts. 376, 379, 385,repealed Nov. 16, 1982, infra note 59. See 18 WEEKLY COMP. PRES. Doc. 820. (Statement onExtension of U.S. Sanctions, June 18, 1982) (June 21, 1982); see also Hearings, supra note 6.

37. The relevant provisions of the newly amended regulations read as follows:§379.8(a) Prohibited Exports and Reexports.

(4) Export or reexport to the U.S.S.R . of any foreign produced direct productof U.S. technical data, or any commodity produced by any plant or major componentthereof that is a direct product of U.S. technical data . . . if:

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where no indication was given by President Reagan to European heads ofState concerning developments in the U.S. position. 8

B. European Community Reaction

The four European countries principally involved, France, West Ger-many, Italy and the United Kingdom, brought the affair to the EEC Coun-cil and to the European Council, which is the summit meeting of EECcountries. The European Council endorsed the EEC Council statement ofJune 22, according to which the U.S. extension of sanctions "taken withoutany consultation with the Community, implies an extraterritorial extensionof U.S. jurisdiction which, in the circumstances, is contrary to the princi-ples of international law, unacceptable to the Community and unlikely to berecognized in courts in the EEC."' 9

The United States was then formally apprised of European indignationthrough diplomatic channels. A first diplomatic note was transmitted to theUnited States by Denmark, then president of the EEC Council, on behalfof the Community on July 14, 1982. The definitive note was transmitted onAugust 12,40 accompanied by legal comments by the EEC Commission that

(ii) The U.S. technical data are the subject of a licensing agreement with . . . anyperson subject to the jurisdiction of the United States as defined in §385.2(c), regardlessof when the data were exported from the U.S.

§385.2(c)(1) [P]rior written authorization . . . is required . . . for the export andreexport to the U.S.S.R. of oil and gas exploration, production, transmission or refine-ment goods of U.S. origin. . . . Also included in the scope of this control are technicaldata of U.S. origin. . . . The foreign product of such data is also controlled[§379.8]. . . . In addition, prior written authorization is required for the export to theU.S.S.R. of non-U.S. origin goods and technical data by any person subject to the juris-diction of the United States.

(2) For the purpose of this §385.2(c) only, the term "person subject to the jurisdic-tion of the United States" includes (i) Any person, wherever located, who is a citizen orresident of the United States: (ii) Any person actually within the United States; (iii) Anycorporation organized under the laws of the United States or of any state, territory, pos-session, or district of the United States; or (iv) Any partnership, association, corporation,or other organization, wherever organized or doing business, that is owned or controlledby persons specified in paragraphs (i), (ii), or (iii) of this section.

47 Fed. Reg. 27,250-52, repealed Nov. 16, 1982.38. See Economic Summit Final Communique, 82 DEP'T ST. BULL. No. 2064, at 5, 6

(July 1982).39. 15 BULL. EUR. COMM. No. 6 at point 2.2.44 (1982).40. Presidency of the Council of the European Community and Commission of the Euro-

pean Community, Gas Pipeline: Comments of the European Community as Regards MeasuresTaken by the U.S. Government (Aug. 12, 1982), reprinted in EURoPE DOCUMENTS, No. 1212(Aug. 12, 1982), N.Y. Times, Aug. 13, 1982, at A4, col. 3.

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were thus endorsed by the main political organ of the Community, repre-senting the opinion of all member States."

In the meantime, individual European governments, held fast to theirposition as to the invalidity of the export controls, and renewed instructionsto their domestic companies to proceed with normal execution of contrac-tual obligations with the Soviet Union despite the U.S. embargo. Threelines of argument, legal and extra-legal, justified such instructions. First,the American decision was considered not only legally unenforceable, butalso politically undesirable, since the decision seemingly ignored the con-trary views voiced by European countries. Second, poor economic conditionsat the time made financially troubled firms reluctant to forego performanceof Soviet contracts; moreover, long-term policies favored continuation of en-ergy and equipment trade with the Soviet Union. Third, the firms involvedfaced high penalties claimed by Soviet agencies for breach of contract, be-cause U.S. government compulsion would not be recognized by the USSRas an adequate defense. 42

C. The Euro-American Crisis

As a result of the pipeline embargo, West European governments thathave seldom reached a common position East-West or Atlantic issues wereable to achieve unprecedented political unity.'8 As the scheduled date of the

41. Commission of the European Community, Comments of the European Community onthe amendments of June 22, 1982 to the U.S. Export Administration Regulations (Aug. 10,1982), reprinted in 21 INT'L LEGAL MATERIALS 891 (1982) [hereinafter cited as EC LegalComment].

42. See supra note 15.43. See Resolution on Trade Relations between the USA and the EEC, 1982-1983 EUR.

PARL. Doc. (No. PV 26) 3, 4 (1982); Resolution on the Soviet Gas Pipeline and the Extensionof the Embargo to Firms Based in the Community, Minutes of Proceedings of the Sitting ofThursday, Sept. 16, 1982 in 25 0. J. EUR. COMM. (No. C 267) 41, 42 (1982); Union ofIndustries of the European Community, Press Release (Aug. 19, 1982) (circulated as EC Doc.9198/82, Aug. 27, 1982).

The initial European reaction in each country was as follows: in the United Kingdom, theSecretary of State for Trade invoked the Protection of Trading Interests Act of 1980, ch. 11.Pursuant to this Act four U.K. companies were indirectly instructed to carry on business asplanned. See Statement by U.K. Secretary of State for Trade (Aug. 2, 1982), reprinted in 21INT'L LEGAL MATERIALS 851, 852 (1982).

In France, the French Minister for Industry issued an order on July 22, 1982 pursuant toa 1959 ordinance, No. 59-63, 1959 O.J. 548 (Jan. 8, 1959), 1959 D.L. 212, informing Dresser(France) and Rockwell Valves, two foreign controlled firms, that the French governmentwould requisition them if they did not carry on their contractual obligations. See Le Monde,July 24, 1982, at 1, col. 4.

The Italian government controlled all the major suppliers affected by the U.S. embargo sothat mere governmental instructions were sufficient to ensure compliance. See Le Monde, Nov.

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first deliveries of the controversial compressor parts approached, Euro-American relations deteriorated rapidly. 4 Neither the United Stated northe European countries took steps to avoid confrontation.

On August 23, 1982, the French government ordered Dresser (France)to proceed with the loading of three compressors on a Soviet-bound ship.On the same day, Dresser (France) filed a petition for a temporary re-straining order against the U.S. Department of Commerce with the FederalDistrict Court for the District of Columbia, arguing that it would suffer"immediate and irreparable harm" if it were forced to comply with theU.S. regulations.

45

Judge Thomas 0. Flannery was unconvinced by this argument, how-ever, and took note of the Administration's declaration that it was not pre-pared to recognize the validity of the French order and that, under thosecircumstances, relief from the regulations would "severely damage the for-eign relations of the United States." The court thus refused to grant injunc-tive relief to Dresser (France). 46

Faced with penalties from both the United States and France, Dresser(France), the wholly-owned French subsidiary of an American parent,choose to comply with the law of France, the country where it was incorpo-rated, does business, and where it has its headquarters and its factories. Thecompressors were loaded on August 26, 1982 on board the Borodine, at LeHavre.

Almost instantly on confirmation of the delivery, the U.S. Departmentof Commerce issued, as had been foreseen, a temporary denial orderagainst Dresser (France) 4' and, most surprisingly, Creusot-Loire,4

8 theprincipal contractor of the French share of the compressor supplies. Thetwo companies were put on an exclusion list and were denied all export

16, 1982, at 6, col. 5.In West Germany, the affected firms were assured of government support by means of a

letter from the Under Secretary of State, Dr. Dieter von Winzen, dated August 25, 1982. SeeN.Y. Times, Aug. 29, 1982, § 4, at 3, col. 4.

44. Examples of the tensions included disputes over steel and agricultural subsidies, for-eign consequences of the U.S. interest rates policy, not to mention the psychological impact ofthe extension of the grain sales agreement with the Soviet Union.

45. Dresser Industries v. Baldridge, 549 F.Supp. 108 (D.D.C. 1982). Reported in N.Y.Times, Aug. 25, 1982 at Al, col. 4 and D5, col. 1.

46. Id. 47 Fed. Reg. 38,170 (Aug. 30, 1982) as modified by Order of September 7, 1982.47. 47 Fed. Reg. 39,708 (Sept. 9, 1982). The choice of penalties is discretionary under

the Export Administration Act. It is reported that Department of Commerce officials contem-plated resort to extradition from France and imprisonment of the managers of the firms in-volved. N.Y. Times, Aug. 25, 1982, at D5, col. 4, id., Aug. 27, 1982, at D14, col. 4.

48. 47 Fed. Reg. 38,169 (Aug. 30, 1982), as modified by Order of September 23, 1982,47 Fed. Reg. 42,392 (Sept. 27, 1982).

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privileges, meaning that any goods or services imported by them from theUnited States, but not their exports to the United States, were embargoedfor an initial and renewable period of 30 days. This action, termed "a mea-sured response" by Department of Commerce officials,"9 was clearly in-tended as political pressure. It was most unlikely to have any effect on theparticipation of these firms in the pipeline construction, while it could, inthe long run, sever all their parent-subsidiary relationships. IncludingCreusot-Loire on the exclusion list provided an alternate subject of futureretaliation in case of a Dresser (France) takeover by non-Americans: pres-sure could easily be exerted over the thirteen U.S. subsidiaries of Creusot-Loire which were cut off by the embargo from support by their parentcompany.

While Dresser (France) appealed to the Department of Commerce,events in other European countries clearly showed their determination tochallenge the American position. On August 31, 1982, John Brown Engi-neering, subject to Her Majesty's Government order,5" began delivery of sixturbines. In the course of the next few days, similar shipments of parts tobe used in General Electric-designed compressor kits, were made by NuovoPignone and AEG-Kanis. Thus, in an unprecedented near-unanimity, pub-lic opinion leaders strongly supported fulfillment of existing contracts andresistance to United States claims.

Faced with criticism from Congress and American public opinion,51 inaddition to the massive European outcry, United States officials began tolose confidence. On September 7, 1982, the denial order affecting Frenchcompanies was restricted to oil and gas equipment, thus allowing restora-tion of normal corporate intercourse in most fields of business. 2 Moreover,a clause stressed that renewal or repeal of the order depended on the out-come of an administrative investigation regarding the validity of the foreigncompulsion argument as a defense.58 This clause, together with the nar-rower scope of the export restriction, represented a major departure fromthe earlier, more inflexible stance.

The scaling down of sanctions notwithstanding, the Administrationmaintained its determination to enforce the June 22 regulations. Measures

49. N.Y. Times, Aug. 27, 1982, at A1, col. 4. See also N.Y. Times, Aug. 29, 1982, §4, at3, col. 1; N.Y. Times, Sept. 3, 1982, at D4, col. 4.

50. U.K. Protection of Trading Interests (U.S. Reexport Controls) Order 1982 No. 885,reprinted in 21 INT'L LEGAL MATERIALS 851-52 (1982).

51. See Hearings, supra note 6, at 35; N.Y. Times, Aug. 11, 1982, at Al, col. 1; N.Y.Times, Aug. 23, 1982, at 8, col. 4; N.Y. Times, Aug. 31, 1982, at Al, col. 2; N.Y. Times,Sept. 1, 1982, at Al, col. 1.

52. 47 Fed. Reg. 39,708 (Sept. 9, 1982).53. Id.; see also supra note 45.

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were taken in September against Nuovo Pignone and its subsidiary INSOS.p.A.; against John Brown and AEG-Kanis; and against three companiesof the Mannesmann group, that was penalized as principal contractor.These firms joined Dresser (France) and Creusot-Loire on the new specificdenials list." Thirteen Creusot-Loire European subsidiaries were consideredfor inclusion on the denial list.

Nevertheless, European resistance did not weaken. On September 10,1982, the British Secretary of State for Trade took a second step under theprocedure of the Protection of Trading Interests Act of 1980"5 and orderedWalter Kidde Company and Andrew Antenna Systems, both subsidiaries ofAmerican firms, to fulfill their contracts with the Soviet Union.5 6 A fewdays later, a smaller French contractor, Compagnie europ6enne des p6-troles, won a case in a lower Dutch court ordering Sensor Nederland BV, asubsidiary of the Texan firm Geosource, Inc., to supply the former with2400 seismometers destined for the Siberian pipeline, in spite of the factthat the latter's parent company was willing to comply with the U.S. regu-lations. The court ruled that these regulations were at variance with inter-national law and incompatible with Dutch law, and thus could not representa valid excuse for nonperformance.5 7

From the end of August to mid-October 1982, almost every daybrought news of shipments of pipeline equipment to the Soviet Union, ofDepartment of Commerce denial orders, and of European countermeasures.While construction of the pipeline went on, the political situation in Polandwas unchanged. These sanctions, originally imposed to effect a united West-ern Alliance response to an East-West impasse, had evolved into a source ofEuro-American tension.

D. An Inconclusive Epilogue

The United States Administration made it clear from the beginningthat export controls related to the pipeline would be lifted only if the Euro-pean allies accepted new, stricter, multilateral controls on East-West com-mercial, technological and financial relations.

But many European governments did not share President Reagan's

54. 47 Fed. Reg. 40,205 (Sept. 13, 1982).55. U.K. Protection of Trading Interests Act, 1980. ch. 11, reprinted in 21 INT'L LEGAL

MATERIALS 834 (1982).56. See Order cited in Samie, Extraterritorial Enforcement of Untied States Antitrust

Laws: The British Reaction, 16 INT'L LAW. 313 (1982).57. Judgment of Sept. 17, 1982, Arrondissementsrechtbank, The Hague, 1982 Recht-

spraak van de Week, Kort Geding No. 167, translated in 22 INT'L LEGAL MATERIALS 66(1983); see Basedow, 47 RABELS ZEITSCHRIFT 141, 147 (1983).

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views on the matter 7.' France was not prepared to negotiate the termina-

tion of sanctions taken unilaterally in violation of international law. Theother European countries took a more cautious line by actively seeking adiplomatic solution even though they shared France's view on the inadmissi-bility of the controls.

Negotiations took place in Washington between the United States andthe ambassadors of France, West Germany, Italy and the United Kingdom,joined at a later stage by representatives of Japan and Canada, and by theEC Commission and Danish EC presidency. The White House published onNovember 12, 1982,8 a vaguely worded joint declaration of intent that rep-resented the very agreement on reinforced East-West trade controls whichthe Administration had made a precondition to the lifting of sanctions. OnNovember 13, 1982, the controversial regulations were repealed. 9

European countries were not particularly pleased to see that Washing-ton had linked the repeal of sanctions to a multilateral agreement, but mostof them acceded. The French government, however, publicly announcedthat it was not a participant in the agreement, in accordance with its posi-tion that the sanctions had to be withdrawn unconditionally." This attemptat depriving Washington of its pretext only added a last-minute element toa year-long imbroglio.

It is safe to assert that the events that actually led to the repeal of thesanctions were not more related to the objectives of the sanctions than werethe events that first triggered the controls. Nevertheless, it is important todetermine the legal relevance of these actions, which have added to theinternational law practice in the States concerned. The resolution of thepipeline dispute was far from satisfactory in one very important respect.The interested parties, by issuing the declaration of intent, reached a politi-cal settlement which was isolated from the juridical issues at stake. Thisdetermination to separate political and juridical issues prevented the coun-tries involved in the dispute from attempting to bridge the widening gapbetween their concepts of international law. Thus, the pipeline disputeraises more legal problems than it helps to solve.

57.1. In particular, the American attempt at reviving CoCom (the Coordinating Commit-tee of the informal Consultative Group of most NATO countries and Japan, founded 1949 inParis) failed during an unfortunate meeting held shortly after the peak of the pipeline crisis.Journal de Gen~ve, Oct. 6, 1982, at 5.

58. See 18 WEEKLY COMP. PREs. Doc. 1475-76 (Nov. 22, 1982).59. 47 Fed. Reg. 51,858 (Nov. 18, 1982), amending 15 C.F.R. pts. 379, 385, 390, 399.60. Le Monde, Nov. 16, 1982, at 6, col. 3.

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IV. PRINCIPAL LEGAL ISSUES

The extraterritorial reach of United States law has caused a number ofproblems in international economic relations over the last decades. Thepipeline dispute has therefore many antecedents, although it is unique in itsrepercussions on international public opinion. It is all the more regrettablethat no attempt has been made to submit it to the International Court ofJustice or to an arbitral tribunal, thus depriving the legal community of adecision or an award that could have been of major significance for thedefinition of jurisdiction in international law. This article has no intentionof substituting its findings for the case law badly needed on those aspects. Itsimply relates several major problems of international law to State practiceas developed during the pipeline affair and then suggests a possible solutionfor analogous confrontations likely to occur in the future.

A. Jurisdiction in International Law

Jurisdiction is one of the cornerstones of international law, directly re-lated to sovereignty since it consists of the State's right to exercise its pow-ers over its territory and its nationals. 1 Thus, jurisdiction appears as a co-rollary of the principle of sovereign equality,62 although, unlike sovereignty,jurisdiction by its very nature cannot be exclusive.

The existence of two principal bases of jurisdiction, territoriality andnationality, may cause conflicts of jurisdiction between the national Stateand the territorial sovereign." Moreover, both territoriality and nationalityare subject to different interpretations with regard to their applicability tocertain facts and to legal persons that do not fit exactly into basic catego-ries. The pipeline dispute raises several issues in this respect. For example,some problems can be considered as classic, such as the existence of nation-ality links in the case of corporations, particularly multinational enterprises.Others may be more difficult to fit under usual definitions, such as the

61. See J. BRIERLY, THE LAW OF NATIONS 162 (6th ed. 1963); I. BROWNLIE, PRINCIPLESOF PUBLIC INTERNATIONAL LAW 120, 291 (2d ed. 1973); Mann, The Doctrine of Jurisdictionin International Law, 111 RECUEIL DES COURS DE L'ACAD-MIE DE DROIT INTERNATIONALlb]hereinafter cited as HAGUE REC.] 1, 9 (1964-1). in H. KELSEN, PRINCIPLES OF INTERNA-TIONAL LAW 216 (2d ed. 1966), the proposition is reversed to the effect that territory andnational population are determined by the sphere of validity of national law as defined byinternational law, so that they depend on the range of jurisdiction much more than the latterdepends on them.

62. I. BROWNUIE, supra note 61, at 120.63. 1 (1) G. SCHWARZENBERGER, INTERNATIONAL LAW AS APPLIED BY INTERNATIONAL

COURTS AND TRIBUNALS 183 (3d ed. 1957); Akehurst, Jurisdiction in International Law, 46BRIT. Y.B. INT'L L. 145, 145; Mann, supra note 61, at 10.

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United States claims over the foreign use of technology. These are the mainconcerns of the present discussion but, in order to avoid presumptive affir-mations, it will be useful to review briefly existing international rules on thelimits to State jurisdiction in general."

A major difficulty arises from the fact that the international case lawon jurisdiction is infrequent; further, most cases address particular aspectsof jurisdiction, which do not warrant generalization. One undisputed point,however, is that sovereignty and jurisdiction find their principal limit in ter-ritory. As Max Huber ruled in the Island of Palmas case:

Territorial sovereignty is, in general, a situation recognized and de-limited in space ..... Territorial sovereignty . . . involves the exclu-sive right to display the activities of a State. . . . Territorial sover-eignty cannot limit itself to its negative side, i.e., to excluding theactivities of other States; for its serves to divide between nations thespace upon which human activities are employed, in order to assurethem at all points the minimum of protection of which internationallaw is the guardian."

It is also uncontested that "legislation is one of the most obvious forms ofthe exercise of sovereign power"" so that, if prima facie "the territory iscoterminous with the sovereignty,"67 then legislative or prescriptive jurisdic-tion is principally territorial." This proposition leaves two issues open: (1)whether prerogative or enforcement jurisdiction is coterminous with legisla-tive jurisdiction; and (2) whether primordial grounds for jurisdiction otherthan territoriality exist. An attempt to answer both questions was made bya narrow majority of judges of the Permanent Court of International Jus-tice in the often-quoted case, S.S. Lotus.e9 Having restated the undisputedprinciple that:

64. See generally Akehurst, supra note 63; Jennings, The Limits of State Jurisdiction,32 NORDISK TIDSSKRIFr FOR INTERNATIONAL RET 209 (1962); Mann, supra note 61; Sahovic& Bishop, The Authority of the State: Its Range with Respect to Persons and Places, inMANUAL OF PUBLIC INTERNATIONAL LAW 311 (M. Sbrensen ed. 1981).

65. Island of Palmas (Neth. v. U.S.), 2 R. Int'l Arb. Awards 829, 839 (Perm. Ct. Arb.1928).

66. Legal Status of Eastern Greenland (Den. v. Nor.), 1933 P.C.I.J., ser. A/B, No. 53, at48 (Judgment of April 5).

67. North Atlantic Coast Fisheries (U.S. v. Gr. Brit.) 11 R. Int'l Arb. Awards 167,Hague Ct. Rep. (Scott) 141, 157 (Perm. Ct. Arb. 1910).

68. I. BROWNLIE, supra note 61, at 291; Mann, supra note 61, at 30.69. S.S. Lotus (Fr. v. Turk.) 1927 P.C.I.J., ser. A. No. 10 (Judgment of Sept. 7).

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The first and foremost restriction imposed by international lawupon a State is that - failing the existence of a permissive rule to thecontrary - it may not exercise its power in any form in the territory ofanother State. In this sense jurisdiction is certainly territorial; it cannotbe exercised by a State outside its territory except by virtue of a per-missive rule derived from international custom or from a convention.70

The Court went on to note that:

It does not, however, follow that international law prohibits a Statefrom exercising jurisdiction in its own territory in respect of any casewhich relates to acts which have taken place abroad and in which itcannot rely on some permissive rule of international law. Such a viewwould only be tenable if international law contained a general prohibi-tion to States to extend the application of their laws and the jurisdic-tion of their courts to persons, property and acts outside their territoryand if, as an exception to this general prohibition, it allowed States todo so in certain specific cases.71

Thus, after mentioning the existence of customary exceptions to the strictrule of territoriality, the majority of the Court extended the scope of excep-tions by affirming the existence of a general permissive rule, both for legis-lative and enforcement jurisdiction. This permissive rule should be tracedback to the ultimate principles of international law; its effect would be tonullify the territorial principle. The Court stated:

Far from laying down a general prohibition to the effect thatStates may not extend the application of their laws and the jurisdictionof their courts to persons, property and acts outside their territory, it[international law] leaves them in this respect a wide measure of dis-cretion which is only limited in certain cases by prohibitive rules; asregards other cases, every State remains free to adopt the principleswhich it regards as best and most suitable.7 2

The effect of this dictum would have been to contradict the principlethat the competences of the State are limited by international law, in favorof what has been termed the principle of presumptive freedom of State ac-

70. Id. at 18.71. Id. at 19.72. Id. at 19.

1984]


tion," were it not for the fact that the Court decision is far from beingauthoritative on this matter. First, the president of the PCIJ was forced tocast the decisive vote over a divided court. Moreover, the case arose overfifty years ago, before international relations underwent a far-reachingevolution. Finally, the Court's statement appears to be dicta in a case thatfocuses on the particular issue of criminal jurisdiction with respect to collid-ing ships on the high seas. Although commentators have strongly criticizedthe Court's decision,7 4 the S.S. Lotus remains influential in United Statespractice.75 In the opinion of this author, the language of the S.S. Lotus doesnot provide a solution to the problem here posed.

B. Legislation and Enforcement Jurisdiction

The single concept of jurisdiction has two aspects - those of legisla-tion and enforcement - for prescription of rules cannot be a proper exer-cise of State sovereignty if the State is not allowed the right to enforcethem. But it does not necessarily follow that the distinction between legisla-tive and prerogative, or enforcement, jurisdiction is secondary. Any legisla-tive claim to jurisdiction or its enforcement beyond the limits set by inter-national law is, of course, unlawful.7 e The Permanent Court ofInternational Justice has recognized that, in given circumstances, the veryenactment of a statute at variance with international law gives rise to inter-national obligations, regardless of subsequent enforcement.7 7 The reverseproposition, namely that if enforcement is unlawful, then legislation mustbe unlawful as well, is not always true. There are cases where a State canpass legislation compatible with international law and yet have no practicalmeans to enforce it without resorting to a claim of excessive prerogative

73. H. LAUTERPACHT, THE DEVELOPMENT OF INTERNATIONAL LAW BY THE INTERNA-TIONAL COURT 20 (1958).

74. See the authorities cited by I. BROWNUE, supra note 61, at 295, and by Mann, supranote 61, at 35.

75. It appears that United States practice recognizes limitations to enforcement jurisdic-tion only under certain conditions which, broadly speaking, amount to considerations of oppor-tunity and effectiveness, and rely on comity as voluntary restraint rather than as a consequenceof the principle of sovereign equality. See RESTATEMENT (SECOND) OF FOREIGN RELATIONSLAW, §§37, 39, 40 (1965); see also Jacobs, Asserting Control over the Conduct of ForeignCompanies: The Main Issues Involved, Swiss REV. INT'L ANTITRUST L. No. 13, 3, 14 (1981);Maier, Extraterritorial Jurisdiction at a Crossroads: An Intersection Between Public and Pri-vate International Law, 76 AM. J. INT'L L. 280 (1982).

76. I. BROWNLIE, supra note 61, at 302.77. Phosphates in Morocco (It. v. Fr.), 1938 P.C.I.J., ser. A/B, No. 74, at 25 (Judgment

of June 14).

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jurisdiction.78

The principle of strict territoriality of enforcement jurisdiction, withthe obvious exception of universal jurisdiction, appears to have been recog-nized in recent times by United States courts.79 Several uncertainties re-main regarding court orders intended to have an extraterritorial reach. Itdoes not seem that American jurisprudence makes the distinction familiarto civil law countriesa° between curial jurisdiction enabling a court to sub-ject persons to its procedure and substantive jurisdiction aimed at regulat-ing the conduct of those persons in a manner comparable to law-making.81

Therefore, European doctrine usually opposes the extraterritorial effect ofUnited States courts' substantive orders, which have given rise to manyproblems in international practice,82 as in the Dresser case. 8

One of the clearest ways to distinguish between what is permissibleand what is not regarding extraterritorial judicial enforcement is to followthe example of one of the most learned writers" and resort to the classical

78. A classic case would be that of a State subjecting its nationals abroad to militaryservice. See Mann, supra note 61, at 13, 128.

79. FTC v. Compagnie de Saint-Gobain Pont-A-Mousson, 636 F.2d 1300 (D.C. Cir.1980).

80. The distinction is also familiar to the United Kingdom and Commonwealth countriesthat have enacted statutes blocking the extraterritorial reach of foreign court orders by prohib-iting for instance production of documents. See, e.g., Protection of Trading Interests Act,1980, §2; U.K. Response to U.S. Diplomatic Note Concerning the U.K. Protection of TradingInterests Bill, British Embassy, Washington, Note No. 225, at 2 (Nov. 27, 1979) reprinted in21 INT'L LEGAL MATERIALS 847, 848 (1982). See generally authorities cited by Samie, supranote 56, at 316 n.18.

81. It would fall outside the range of the definition of lawmaking, since such a prescrip-tion would neither be general nor abstractly termed, but would fall under the broader categoryof normative acts, a familiar concept to civil law lawyers. See also Mann, supra note 61, at146.

82. Two antitrust cases gave rise to strong foreign protest: United States v. ImperialChem. Indus., 100 F. Supp. 504 (S.D.N.Y. 1951) (ordering compulsory licensing to Americanfirms in Great Britain), British Nylon Spinners, Ltd. v. Imperial Chem. Indus., [1955] 1 Ch.19, [19531 2 All E.R. 780 (Ch. 1953), aff'd [1954] 3 All E.R. 88 (C.A. 1953) (injunctionagainst compliance with S.D.N.Y. Court order granted and affirmed on ground of U.S. intru-sion on British sovereignty); United States v. Watchmakers of Switzerland Information Cen-tre, Inc., 1963 Trade Cas. (CCH) 77,424 (S.D.N.Y. 1963), rev'd 1965 Trade Cas. (CCH)71,352 (S.D.N.Y. 1965) (order to terminate Swiss government-sponsored market allocation

agreement in Switzerland repealed after diplomatic protest). See Akehurst supra note 63, at194, 201; Goldman, Les champs d'application territoriale des lois sur la concurrence, 128HAGUE REC. 631, 655, 710 (1969-III); Mann, supra note 61, at 106; Samie, supra note 56, at318; Sornarajah, The Extraterritorial Enforcement of U.S. Antitrust Laws: Conflict andCompromise, 31 INT'L & Comp. L.Q. 127 (1982).

83. See Dresser Industries v. Malcolm Baldridge, No. 82-2385, (D.D.C. Nov. 4, 1982),for a complete history of the Commerce Department's administrative decisions.

84. Goldman, supra note 82, at 706.

1984]


concepts of imperium and jurisdictio. That is, judicial cognizance of factsoutside the territory of the State of the forum would be an exercise of juris-dictio, while court orders of a prescribing character would represent a formof imperium and as such would amount to a breach of international law ifthey are capable of interfering with justified exercise of sovereignty by an-other State.65

C. Grounds for Exercise of Jurisdiction

Except in particular cases, prerogative or enforcement jurisdiction isstrictly territorial. Prescriptive jurisdiction, on the other hand, may be justi-fied on other grounds, as already suggested by the aforementioned national-ity principle.

It is frequently affirmed that legislative jurisdiction may be groundedon one of the five following principles: (1) territoriality; (2) nationality; (3)protective principle; (4) universality; and (5) passive personality." This ar-ticle will neither address the universality principle, which has no relation tothe issues involved in the Siberian gas pipeline dispute, nor the passive per-sonality principle, which has not been claimed as a basis of jurisdiction bythe countries involved. 7 Similarly, the protective principle need not be ex-amined here, since the question of national security interests has beenraised neither by the United States86 nor by European countries with re-spect to East-West cooperation related to the pipeline project. Discussion ofthe applicability of the protective principle would, however, be necessary ina broader review of trade controls.

We are thus left with the two basic principles, territoriality and nation-

85. On the imputability of acts of judicial organs to the State, see, e.g., Draft Conventionon the International Responsibility of States for Injuries to Aliens, art. 16, 55 AM. J. INT'L L.548 (Harvard Research in International Law, 1961).

86. See, e.g., I. BROWNuE, supra note 61, at 293; Dickinson, Introductory Com-ment-Draft Convention on Jurisdiction with Respect to Crime, 29 AM. J. INT'L L. (Supp.)443 (Harvard Research in International Law, 1935); Sahovi6 & Bishop, supra note 64, at 355.To simplify, we assume that jurisdiction with respect to trade, as in the case of export controlsor even antitrust, can be dealt with from the criminal law point of view, but see Akehurst,supra note 63, at 190; Mann, supra note 61, at 95.

87. See generally I. BROWNLIE supra note 61, at 296; Sahovid & Bishop supra note 64,at 365, and authorities cited therein.

88. It is safe to assert that the protective principle applies only to offenses seriously en-dangering the State. Since the pipeline export controls were enforced pursuant to Section 6 ofthe Export Administration Act, supra note 33, §2405, concerning foreign policy controls, andnot as national security controls under Section 5 of the same Act, §2404, it is not necessary toreview possible U.S. arguments over the security implications of the pipeline embargo enforce-ment. See also Judgment of Sept. 17, Arrondissementrechtbank, The Hague, §7.3.3; EC LegalComment, supra note 41, at 6.

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19841 JURISDICTIONAL CODES OF CONDUCT

ality. The latter is not on the same footing as the former, since in manyfields, such as criminal law, legislative jurisdiction follows strict territorial-ity."9 It is therefore important to distinguish acts taking place within theterritory from acts committed by nationals, even if the distinction is some-what blurred in international economic matters.

Indeed, the problem of distinguishing between national and territorialjurisdiction is well illustrated by the effects doctrine, most frequently re-sorted to in antitrust matters.90 By applying the effects doctrine, a Statepurports to regulate factors wherever they may occur, whose undesirableeffects can be felt within its territory. It should simply be recalled that thisdoctrine relies on the concept of objective territoriality,91 as opposed to sub-jective territoriality according to which the location of the author, not ofthe act, is relevant. Thus, the United States and the European Commu-nity92 resort to it and purport to regulate events whose undesirable effect

89. Only a constitutive element of the crime need take place within the territory, how-ever. See the S.S. Lotus, 1927 P.C.I.J. at 23, 30; RESTATEMENT (SECOND) OF FOREIGN RELA-TIONS LAW, §18 (1965); Draft Convention on Jurisdiction with Respect to Crime, art. 3, 29AM. J. INT'L L. (Supp.) 480 (Harvard Research in International Law, 1935). On the excep-tions to the rule of territoriality, see, e.g., I L. OPPENHEIM, INTERNATIONAL LAW §147, at 333(H. Lauterpacht ed., 8th ed. 1955); Dickinson, supra note 86, at 546; Mann, supra note 61, at82.

90. United States v. Aluminum Co. of Am., 148 F.2d 416, 443 (2d Cir. 1945); RESTATE-MENT (SECOND) OF FOREIGN RELATIONS LAW §18 (1965). Excessive consequences of the ef-fects doctrine are somewhat offset by the "balancing of interests" approach, Timberland Lum-ber Co. v. Bank of America, 549 F.2d 597 (9th Cir. 1976); Mannington Mills Inc. v.Congoleum Corp., 595 F.2d 1287 (3d Cir. 1979); see also RESTATEMENT (SECOND) OF FOR-EIGN RELATIONS LAW §40 (1965). Explicit acceptance of the existence of international lawlimits to extraterritorial reach of jurisdictional claims under the effects doctrine is still lackingin United States practice.

On extraterritorial antitrust jurisdiction, see generally K. BREWSTER, ANTITRUST ANDAMERICAN BUSINESS ABROAD (1958); Akehurst, supra note 63, at 190; Goldman, supra note82; Griffin, Possible Resolutions of International Disputes Over Enforcement of U.S. Anti-trust Laws, 18 STAN. J. INT'L L. 279 (1982); Haight, International Law and ExtraterritorialApplication of the Antitrust Laws, 63 YALE L.J. 639 (1954); Jennings, Extraterritorial Juris-diction and the United States Antitrust Laws, 33 BRIT. Y.B. INT'L L. 146 (1957); Joelson,Extraterritorial Effects of American Antitrust Laws, 12 INT. LAW. 616 (1978); Kestenbaum,Antitrust "Extraterritorial" Jurisdiction: A Progress Report on the Balancing of InterestsTest, 18 STAN. J. INT'L L. 311 (1982); Mann, supra note 61, at 95; Oliver, ExtraterritorialApplication of United States Legislation Against Restrictive or Unfair Trade Practices, 51AM J. INT'L L. 380 (1957); Samie, supra note 56; Sornarajah, supra note 82; Whitney,Sources of Conflict Between International Law and the Antitrust Laws, 63 YALE L.J. 655(1954).

91. Anticompetitive agreements concluded in the United States but whose effects are feltonly abroad (the so-called export cartels) are not prosecuted under United States antitrust law,Webb-Pomerene Act, 15 U.S.C. §§61-64 (1976).

92. Imperial Chem. Indus. v. Commission (Dyestuffs), 1972 E. Comm. Ct. J. Rep. 619,


can be felt within their respective territories, wherever they may occur.In the Soviet pipeline project, technology, goods and services are all

moving out of the United States, into Western Europe and the USSR; theactivities of European participants to the pipeline project are unlikely tohave any effect within U.S. territory. The effects doctrine, therefore, wouldnot have been a valid ground for the United States' jurisdictional claim."3

The extraterritorial jurisdiction of the pipeline export controls must rely onanother ground, namely nationality.

D. Extraterritorial Jurisdiction Based on Nationality

American concepts of jurisdiction frequently resort to nationality as abasis for asserting competence over persons and property abroad. In thisrespect, the June 22, 1982 amendments on oil and gas equipment are by nomeans unique. Many regulations" have been extended to include businessentities owned or controlled by United States citizens, residents or corpora-tions,95 and goods and services of whatever origin using technology devel-oped in the United States." First, it is useful to review the basic rules ofnational jurisdiction.

International law leaves every State free to determine the conditionsunder which it grants nationality to individuals.'1 Nevertheless, the Interna-tional Court of Justice ruled that national links may be opposed by other

[1971-1973 Transfer Binder] COMMON MKT. REP. (CCH) 18161, affig Decision of July 24,1969 (Dyestuff manufacturers), 12 OJ. EuR. CoM. (No. L 195) (Aug. 1, 1969), (1965-1969Transfer Binder] COMMON MKT. REP. (CCH) 19314. But see Akehurst, supra note 63, at 197(Court ruling does not explicitly support effects doctrine).

93. EC Legal Comment, supra note 41, at 7.94. E.g., Foreign Assets Control Regulations, 31 C.F.R. pt. 500 (1983); Transaction Con-

trol Regulations, 31 C.F.R. pt. 505 (1983); the Cuban Assets Control Regulation, 31 C.F.R.pt. 515 (1983); the Iranian Assets Control Regulations, 31 C.F.R. pt. 535 (1983). The regula-tions amended on occasion of the Siberian pipeline affair, as discussed supra notes 33 & 34and accompanying text, are part of the Export Administration Regulations, 15 C.F.R. pts.368-369 (1983), pursuant to §14(2) of the Export Administration Act of 1979, 50 U.S.C. app.§§ 2401-2410 §2415(2), which defines United States persons as:

[A]ny United States resident or national ... , any domestic concern. . . and any foreignsubsidiary or affiliate . . . of any domestic concern which is controlled in fact by suchdomestic concern, as determined under regulations of the President.

95. See supra text accompanying note 36.96. Id.97. Nationality Decrees in Tunis and Morocco, 1923 P.C.I.J., ser. B, No. 4, at 23 (Advi-

sory Opinion of Feb. 7); Acquisition of Polish Nationality, 1923 P.C.I.J., ser. B, No. 7, at 26(Advisory Opinion of Sept. I5), implemented, Acquisition of Polish Nationality (Ger. v. Pol.),I R. Int'l Arb. Awards 401, 420 (Dr. Kaeckenbeeck, Arb.).

[Vol. 8


States only if they meet certain conditions under international law." Ac-cording to the Court, there must exist a genuine connection, as defined byobjective and psychological criteria, between the individual and the State,in order to entitle the latter to put forward claims on behalf of the former. 9

The Nottebohm ruling has been extended to a general doctrine of national-ity over entities under international law, 00 even though it was intended toapply only to individuals. Secondly, Nottebohm does not affect the basicrule of domestic jurisdiction in regard to the granting of nationality. Fi-nally, it may cause difficulties if extended to cases other than those involv-ing double nationals. 0 1 Consequently, the Nottebohm case does not supportthe position that any business entity having close connections with UnitedStates interests should be regarded as a United States national.' 3 In fact,the idea of nationality of corporations is not even generally accepted in in-ternational practice.'

Another famous case closely related to the issue is the Barcelona Trac-tion case.' 4 In determining which State may be considered the nationalState of the company involved, the Court remarked:

In allocating corporate entities to States for purposes of diplomatic pro-tection, international law is based, but only to a limited extent, on ananalogy with the rules governing the nationality of individuals.' Thetraditional rule attributes the right of diplomatic protection to the Stateunder the laws of which it is incorporated and in whose territory it hasits registered office. These two criteria have been confirmed by long

98. Nottebohm Case (Second Phase) (Liechtenstein v. Guat.), 1955 I.C.J. 4 (Judgmentof April 6).

99. Id. at 76.100. See, e.g., Marcuss & Richard, Extraterritorial Jurisdiction in United States Trade

Law: The Need for a Consistent Theory, 20 COLUM. J. TRANSNAT'L L. 439, 456 (1981).101. Nottebohm Case, 1955 I.C.J at 65 (Dissenting Opinion of Paul Guggenheim, Ad

Hoc Judge).102. Marcuss & Richard, supra note 100, at 456. It should be stressed that the genuine

connection concept has been introduced by Nottebohm as a negative test towards non-opposa-bility of claims based on nationality and not as a constitutive element of nationality itself.

103. I. BROWNLIE, supra note 61, at 408; L. CAFLISCH, LA PROTECTION DES SOCI9TfSCOMMERCIALES ET DES INTIRtTS INDIRECTS EN DROIT INTERNATIONAL PUBLIC 90 (1969); 1 L.OPPENHEIM, supra note 89, §293; 1 (1) G. SCHWARZENBERGER, supra note 63, at 387; Oda,The Individual in International Law, in MANUAL OF PUBLIC INTERNATIONAL LAW 469, 480(M. S/brensen ed. 1968).

104. Barcelona Traction, Light and Power Co. (Second Phase) (Belg. v. Spain), 1970I.C.J. 3 (Judgment of Feb. 5).

105. Id. at 42. The Court explicitly rejected, however, the applicability of the Nottebohmruling to the case in point.

19841


practice and by numerous international instruments.'"

The Court, however, avoided any obiter dictum on the validity of othercriteria, restricting itself to the particular issue of diplomatic protection:

It has been the practice of some States to give a company incorporatedunder their law diplomatic protection solely when it has its seat (si~gesocial) or management or centre of control in their territory, or when amajority or a substantial proportion of the shares has been owned bynationals of the States concerned. Only then, it has been held, doesthere exist between the corporation and the State in question a genuineconnection of the kind familiar from other branches of internationallaw. However, in the particular field of diplomatic protection of corpo-rate entities, no absolute test of the "genuine connection" has foundgeneral acceptance."'7

In particular, the Court has not discussed the validity of the test of control,as recognized by the United States'"8 and several other countries. 1 9 Theconcept of control might nevertheless have great importance in assertingjurisdiction over the foreign subsidiaries of a domestic corporation, eitheron the ground of institutional links (corporate relationship) or of equityshareholding.

E. Nationality of Foreign-Based Subsidiaries

Present international law does not confer a single personality on themany legal persons, each incorporated under the laws of the different State,that together make up the single economic entity known as a multinationalenterprise.110 The World Court expressed this state of affairs in the follow-

106. Id.107. Id.108. To remain in the field of export controls, the Export Administration Regulations

define "control in fact" as: "the authority or ability of a domestic concern to establish thegeneral policies or to control day-to-day operations of its foreign subsidiary, partnership, affili-ate, branch, office or other permanent foreign establishment." 15 C.F.R. §369.1(c)(1) (1984).

109. Notably in Switzerland, see J. MULLER & L. WILDHABER, PRAXIS DES VOELKER-RECHTS 362 (1977), and cases cited therein.

110. It is also known as the multinational corporation, or transnational corporation. Seegenerally, e.g., J. BEHRMAN, NATIONAL INTEREST AND THE MULTINATIONAL ENTERPRISE

(1970); F. FRANCIONI, IMPRESE MULTINAZIONALI, PROTEZIONE DIPLOMATICA E RESPON-

SABILITA INTERNAZIONALE (1979); Angelo, Multinational Corporate Enterprises, 125 HAGUEREC. 443 (1968-III); Feliciano, Legal Problems of Private International Business Enterprises,118 HAGUE REC. 209 (1966-I); Conference on the Regulation of Transnational Corpora-

[Vol. 8


ing terms:

Considering the important developments of the last half-century, thegrowth of foreign investments and the expansion of the internationalactivities of corporations, in particular of holding companies, which areoften multinational, and considering the way in which the economicinterests of States have proliferated, it may at first sight appear surpris-ing that the evolution of law has not gone further and that no generallyaccepted rules in the matter have crystallized on the internationalplane. Nevertheless, a more thorough examination of the facts showsthat the law on the subject has been formed in a period characterizedby an intense conflict of systems and interests . . . Here, as elsewhere,a body of rules could only have developed with the consent of thoseconcerned. The difficulties encountered have been reflected in the evolu-tion of the law on the subject."' 1

This appears as a conservative position, compared with certain doctri-nal tendencies advocating the granting of an international status to mul-tinational corporations and to their contracts and relations with hostStates.1 1 2 This position has been welcomed as the precondition to the devel-opment of an international law solution capable of protecting the interestsof every category of States concerned, including host States. 13 In fact, suchdevelopment is now in progress and may help solve future disputes compa-rable to the pipeline affair.

In the case of international corporations, the concept of control is morewidely accepted as a means of asserting jurisdiction in the regulation of

tions-Proceedings, 15 COLUM. J. TRANSNAT'L L. 367 (1976); Jenks, Multinational Entitiesin the Law of Nations, in TRANSNATIONAL LAW IN A CHANGING SOCIETY 70 (W. Friedmann,L. Henkin, 0. Lissitzyn, eds., 1972); Kopelmanas, L'application du droit national aux en-treprises multinationales, 150 HAGUE REC. 295 (1976-I1); Siqueiros, The Juridical Regula-tion of Transnational Enterprises, 8 CALIF. WEST. INT'L L.J. 1 (1978); Vagts, The Multina-tional Enterprise: A New Challenge for Transnational Law, 83 HARV. L. REv. 743 (1970);Vogelaar, Multinational Corporations and International Law, 27 NEm. INT'L L. REV. 69(1980).

111. Barcelona Traction, Light and Power Co., 1970 I.C.J. 3.112. See, e.g., W. FRIEDMANN, THE CHANGING STRUCTURE OF INTERNATIONAL LAW

(1964). Regarding contracts, the Permanent Court of International Justice has adopted a re-strictive view in Anglo-Iranian Oil Co. (U.K. v. Iran), 1952 I.C.J. 93, 112 (Judgment of July22). For a more recent view on the subject, see, e.g., C. OKEKE, CONTROVERSIAL SUBJECTS OFCONTEMPORARY INTERNATIONAL LAW 207 (1974); D. IJALAYE, THE EXTENSION OF CORPO-

RATE PERSONALITY IN INTERNATIONAL LAW (1978)..1 13. See generally Abi-Saab, The International Law of Multinational Corporations, A

Critique of American Legal Doctrines, 2 ANNALS INT'L STUDIES 97 (1972).

1984]


certain practices than as a means of assigning corporate nationality gener-ally. Not only is there a tendency to consider the multinational enterprise asa whole with respect to labor relations, taxation and, in developing coun-tries, control of technological imports,11' but also, national courts resort toparent-subsidiary linkage as a substitute for the effects doctrine in antitrustcases. 11

5

Although wider acceptance of corporate links as a basis of jurisdictionmight help solve several problems of extraterritorial application of antitrustlaw, the same cannot be said about export controls, the main issue in thepipeline dispute. Most countries do not recognize the validity of the corpo-rate or shareholding link as a ground for application of controls on corpora-tions registered under their respective laws. There seems to be only one caseon this matter,'" Fruehauf v. Massardy, but it was decided without refer-ence to the corporate link issue. Its impact has been significant, however,and shall grow, since it is analogous to the pipeline dispute and has beenreferred to in discussions of the latter.

Fruehauf (France) S.A. was a majority-owned subsidiary of the UnitedStates-based Fruehauf Corporation. Minority directors of the French com-pany had subcontracted with Automobiles Berliet S.A. for French-madetrailers to be fitted to trucks purchased by the People's Republic of China.The United States Department of the Treasury, pursuant to the Tradingwith the Enemy Act,'17 ordered suspension of the contract, and the Ameri-

114. One of the main issues involved in such matters is the disclosure by the subsidiary ofinformation relating to other corporate entities, such as international reallocation of productionwithin the enterprise, and price-fixing methods for international transactions (transfer pricing).See generally, Commercial Speech. Transborder Data Flows and the Right to Communicateunder International Law, 17 INT'L LAW. 87 (1983). There is also a tendency to make theparent responsible for subsidiaries' obligations, see ORGANISATION FOR ECONOMIC CO-OPERA-TION AND DEVELOPMENT, RESPONSIBILITY OF PARENT COMPANIES FOR THEIR SUBSIDIARIES

(1980).115. The Court of Justice of the European Communities considered it proper to exercise

jurisdiction over foreign-based parent companies in certain cases, on the ground that "the ac-tions of the subsidiaries may in certain circumstances be attributed to the parent company."Imperial Chem. Indus. v. Commission, 1972 E. Comm. Ct. J. Rep. 619, 665. In the Alcoacase, on the contrary, the newly-formulated effects doctrine was preferred to the corporate linkas a means of asserting jurisdiction over the act of a Canadian company. United States v.Aluminum Co. of Am., 148 F.2d 416. See Raymond, A New Look at the Jurisdiction inAlcoa, 61 AM. J. INT'L L. 558 (1967).

116. Judgment of May 22, 1965, Cour d'appel, Paris, 1968 D. Jur. 147, translated andreprinted in part in 5 INT'L LEGAL MATERIALS 476 (1966).

117. The Trading with the Enemy Act of 1917, 50 U.S.C. app. §5, §§1-6, 7-39, 40-44(1976 and Supp. IV 1980), amended by Federal Courts Improvement Act of 1982, Pub. L.No. 97-164, §160, 96 Stat. 25, 48, is now restricted to war-time application. The ForeignAssets Control Regulations, 31 C.F.R. pt. 500 (1983), extending jurisdiction to subsidiaries

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can parent instructed the majority directors of Fruehauf (France) to com-ply. Since non-execution of the contract would have entailed payment of alarge sum in damages and a great loss in earnings and probably in thecommercial credibility of the French company, the minority directors ob-tained an order from the local commercial court at Corbeil appointing atemporary administrator so as to assure execution of the Berliet contract.The case was affirmed on appeal on the ground that the majority decision,in conformity with corporate instructions, amounted to an abus de droit(abuse of a legal right), since it was likely to jeopardize the very existenceof the French company and therefore prove contrary to social interest.1 18

The judgment did not mention the problems of foreign compulsory ex-port controls and of jurisdictional claims by home countries of multination-als, but it demonstrated the determination of French authorities to ensurecompliance by foreign-controlled subsidiaries with the laws of the hostcountry. The Fruehauf case has been of great significance for many hostStates of multinationals in asserting that the enterprise's right to exist andgrow is in the social interest and considering it a matter of ordre public(public policy). Its influence can be felt upon the underlying philosophy ofcodes of conduct for multinational enterprises negotiated within the UnitedNations. Additionally, the Fruehauf judgment expresses a concern thatmultinationals comply with domestic economic policy. The United Stateswould certainly share this concern as a host country. 1 The extension ofjurisdiction to subsidiaries abroad in matters of export control has neverbeen formally challenged by Western countries. Nevertheless, the unani-mous reaction of West European countries involved in the pipeline disputesupports the proposition that such an extension is improper where a primor-dial host State's interests are affected. In the opinion of the author, jurisdic-tion over subsidiaries abroad will be recognized in export control mattersonly under a conventional permissive rule or under the provision of codes ofconduct as proposed infra.

F. Jurisdiction Over Future Uses of Technology

Since technology is an intangible factor of production which may be

abroad, were applied in a way very similar to the Export Administration Regulations in thepipeline dispute, 47 Fed. Reg. 27, 250-52.

118. Fruehauf v. Massardy, 1968 D. Jur. 147; Craig, Application of the Trading with theEnemy Act to Foreign Corporations Owned by Americans: Reflections on Fruehauf v. Mas-

sardy, 83 HARV. L. REv. 579 (1970); Marcuss & Richard, supra note 100, at 466; Comment,Western European Sovereignty and American Export and Trade Controls, 9 COLUM. J.TRANSNAT'L L. 109, 118 (1970).

119. EC Legal Comment, supra note 41, at 7.

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used for an indefinite quantity of goods and services, once it has been dis-seminated there is no means of retrieving the technology alone in order todeprive recipients of their newly-acquired expertise. Thus, it may be desira-ble, on grounds of national security, for a State to intervene to prevent thediffusion of different forms of production incorporating sensitive technology.Nevertheless, contractual instruments may prove insufficient to protect theoriginal supplier's rights, and may fail to provide the necessary safeguards.Thus, the United States enacted the Export Administration Act of 1979,120that purports to establish a permanent link between the technology and thecountry where it has been developed, in order to assert jurisdiction over itssubsequent use, regardless of contractual rights and obligations. This con-cept has been termed "nationality" for lack of a better word and by anal-ogy to the extensive concept of nationality of individuals and corporationsadvocated in the United States."" This may sound strange to European earswhen applied to technology, since there does not seem to be any such thingas a nationality of property."' Moreover, it seems contradictory to assertthe genuine connection doctrine, which has been developed by the WorldCourt as a shield against weakly-grounded nationality links of individuals,and to expand the nationality concept to an all-embracing category of legalpersons, financial assets, goods, services, and knowledge.

Thus, the notion that technology can be assigned a nationality is onepeculiar to the United States. Such a notion is without support, either di-rectly or by analogy, 12 8 in international law. It follows necessarily that at-tempts at controlling the use of products incorporating technology devel-oped in the United States once they have left U.S. territory and in theabsence of contractual controls is clearly an intrusion upon the sovereigntyof other States since it amounts to challenging the validity of the title toproperty under the law of those States.

Several cases demonstrate that courts of the recipient countries havenot accepted claims that the technology is controlled by the source country

120. 50 U.S.C. app. §§ 2401-2410 (Supp. I1 1979), amended by the Export Administra-tion Act of 1981, 50 U.S.C. app. §§ 2401-2420 (Supp. V 1982), extended in Exec. Order No.12,470, 49 Fed. Reg. 13,099 (1984).

121. Marcuss & Richard, supra note 100, at 480.122. EC Legal Comment, supra note 41, at 4.123. We cannot even consider as valid the analogy that Marcuss & Richard, supra note

100, at 480, attempt to draw with cultural property. It seems on the contrary that severalStates invalidate titles to property in view of the general interest of the international commu-nity, which is certainly not comparable to the exclusivity implied in the concept of nationalityof technology. Judgment of June 22, 1972, Bundesgerichtshof in Zivilsachen [hereinafterBGHZ], 59 Entscheidungen des BGHZ 83 (a contract insuring art objects exported in viola-tion of the law of the country of origin and of the general interest of the international commu-nity as reflected by certain nonbinding international instruments is not enforceable).

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as a valid excuse for nonperformance of contracts.124 Of course, this is notenough to ensure proper diffusion of technology unjustifiably controlled bythe source country, but the pipeline affair has shown that four major Euro-pean countries have been able to find legal or political means to overcomethe problem. Only the technological capabilities that had not been sharedwith other countries have been successfully embargoed by the UnitedStates, thus stressing the lack of any practical means of control over tech-nology once it has left the territory. 2

G. Possible Countermeasures

Export controls as expanded on June 22, 1982 were thus likely to meetthe opposition of the States under whose territory they purported to haveeffect. This opposition gave rise to a political and legal dispute which en-tailed not only formal protests but also countermeasures designed to blockthe international reach of the amended regulations. Several governmentsput forward legislation enabling them to control economic activities andthey accordingly ordered private firms to perform existing contracts. InGreat Britain such legislation was passed to counter foreign claims to extra-territorial jurisdiction over trade.12 6 Furthermore, in another case, a courtinjunction was issued to ensure fulfillment of a contract by a firm that in-tended to comply with the United States regulations.1 2 7 Two aspects of suchcountermeasures are discussed herein, namely their institutional origin andthe fact that they were in the nature of a response to political and jurisdic-tional conflicts.

124. American President Lines, Ltd. v. China Mutual Trading Co., 1953 A.M.C. 1510(Hong Kong Sup. Ct.) (goods once discharged from an American ship are no longer subject toU.S. jurisdiction); Moens v. Ahlers, North German Lloyd, 30 Rechtskundig Weekblad [RW]360 (Rechtbank van Koophandel/Tribunal de commerce, Antwerp, 1966) (goods exportedunder a valid Canadian license are not subject to U.S. export controls even if the holder of thelicense has been placed on a U.S. denial list). See Marcuss & Richard, supra note 100, at 466;Comment, supra note 118, at 111. But see Regazzoni v. K.C. Sethia [19441 Ltd., 1958 A.C.301, [1957] 3 All E.R. 286 (H.L. 1957) (no damages granted because contract was in viola-tion of export controls of a friendly country whose aims are shared in England).

125. Technology should be understood here to include not only technical data, but alsoexpertise and investment which provide the capacity to use technical specifications profitably.In a broader sense, it could be said that rotor technology for gas turbines had left the UnitedStates since Alsthom-Atlantique was capable of reproducing it, but wide-diameter steel pipetechnology could still be successfully embargoed in West Germany since Soviet firms are notcapable of replicating such pipes at a comparable cost even after importing them for years.

126. Protection of Trading Interests Act, 1980, ch. 11.127. Judgment of Sept. 17, 1982, Arrondissementsrechtbank, The Hague.

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H. Executive and Judicial Measures

Government orders to private firms must be founded on legislative orconstitutional rules enabling the executive branch to intervene in the man-agement of economic activities. Constitutional powers of the French execu-tive branch are, for instance, extremely broad. In the United Kingdomthere was a statute on point readily available to Her Majesty's Government.The Federal Government in Bonn, on the contrary, had to rely on informalmeasures.

128

The French and British actions were almost identical, with a first orderintended as a warning which requested concerned firms to carry on theirobligations in spite of the risk of being denied U.S. export privileges, and,as a second step in specific cases, an order amounting to governmental com-pulsion to perform the contracts. Such an order was not considered a validexcuse by the U.S. Department of Commerce or the District Court for theDistrict of Columbia however, which refused to grant relief to the requisi-tioned firms.15 9

I. Jurisdictional and Substantive Conflicts

Conflicting jurisdictional claims are frequent in international transac-tions involving multinational corporations or suppliers and purchasers of

128. See supra note 43.129. See supra text accompanying note 45.In addition, it should be noted that, although the American attempt at preventing Europe-

an firms from doing business with the Soviet Union had been compared to what is known as asecondary boycott, there was no resort to anti-boycott laws in Europe. EC Legal Comment,supra note 41, at 7. A secondary boycott is broadly defined as "the extension of trade restric-tions to third countries or persons not directly involved in the dispute." 1982-83 EUR. PARL.Doc. (No. 1-83/82) 15 (H.J. Seeler, rapporteur, 1982) at 10. Such an analogy was based onpolitical considerations, to mobilize public opinion, but no one ever seriously asserted that thegas pipeline export controls were contrary to human rights. The French anti-boycott law, forinstance, was not deemed applicable, and French counter-measures were based on foreign pol-icy grounds. Loi No. 77-574 du 7 juin 1977 portant diverses dispositions d'ordre 6conomique etfinancier, 1977 O.J. 3 (June 8, 1977), 1977 J.C.P. III 45772, 1977 JOURNAL DU DROIT IrER-NATIONAL [Clunet] 958. See J. BtsMuTH, LE BOYCOTTAGE DANS LES tCHANGES tCONOMIQUESINTERNATIONAUX AU REGARD DU DROIT (1980).

In one case, a European court, namely the Hague District Court, issued a mandatoryinjunction to a reluctant subcontractor, in order to secure continuation of supplies to the plain-tiff, a pipeline contractor. Judgment of Sept. 17, Arrondissementrechtbank, The Hague, supranote 57. Resort to the courts in Europe was not more frequent simply because all other sub-contractors continued fulfillment of their obligations. There are good reasons to assume, how-ever, that many European courts would have decided similar cases in accordance with theDutch judgment or the better-known Fruehauf v. Massardy, 1968 D.Jur. 147.

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technology. " " For example, more than one country may claim jurisdictionto collect income taxes from a multinational corporation. In the pipelinedispute, however, the conflict was more than purely jurisdictional. It wasalso substantive because the requirements of the United States, the corpo-rate home country, and the European host countries were irreconcilable.Orders from European governments and courts only exacerbated the di-lemma. Nevertheless, domestic courts would probably have affirmed the va-lidity of those orders, if challenged, as a matter of public policy (ordre pub-lic). The scope of this concept varies from one European country toanother, and courts have much latitude in determining if it is applicable ina given case, so that this issue will not be reviewed in great detail. Suffice itto say that contractual obligations, foreign policy requirements,." and ma-jor social interests, as in the Fruehauf case, are deemed in most countries tobe a matter of public policy (ordre public). Therefore, a matter such as thetransfer of technology within a multinational corporation will be subject tothe domestic law of the host State as a matter of public policy, regardless ofwhether it is also subject to the jurisdiction of the home State as a matterof international law.

The substantive and jurisdictional arguments are distinct but clearlyinterrelated, because it is evident that no country will accept as a part ofpublic policy any principle that would be at variance with the basic tenetsof its national law, including its international practice.1 8

2 Similarly, there isno reason for a court to reject the public policy argument in a case compa-rable to the pipeline affair, only to refuse the validity of the foreign rulesfor lack of jurisdiction under international law. On the other hand, if acountry shares the aims of the State enacting export controls, a court inthat country might apply them as foreign law - but not as a consequenceof an obligation under international law - if it considers respect for foreignpolicy aims of a friendly country a matter of public policy.1 8 In every othercase, however, recourse to the latter would be sufficient to enable a court toissue an injunction compelling performance of a contract if non-perform-ance would jeopardize major domestic interests.

130. See Kopelmanas, supra note l10, at 305, 324.

131. Compliance with foreign unilateral export controls would amount to carrying out aforeign trade policy,. which would be against the public policy of the European Communitycountries, asserts the EC Legal Comment, supra note 41, at 5.

132. See, e.g., Horn, Codes of Conduct for MNEs and Transnational Lex Mercatoria, inLEGAL PROBLEMS OF CODES OF CONDUCT FOR MULTINATIONAL ENTERPRISES 45, 67-69 (N.Horn ed., 1980).

133. Regazzoni v. K.C. Sethia [1944] Ltd., 1958 A.C. 301, [1957] 3 All E.R. 286 (H.L.1957).

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J. Self-Restraint in Jurisdictional Claims

Considering the strength of these two arguments, one must wonder ifthe U.S. Department of Commerce had underestimated the likelihood thatforeign governments and courts would successfully challenge compliancewith its regulations. This theory would explain why the extraterritorial ef-fect of the June 22, 1982 regulations were not mitigated by restrainingclauses. For example, restraining clauses appeared both in the Foreign As-sets Control Regulations1 " and the Cuban Assets Control Regulations.185

In the former case, the regulations are subject to a general enabling clausefor all transactions not expressly prohibited. The effect of such a clause istherefore to suspend the extraterritorial effect of the regulations except fora closed list of countries and goods:

(a) Except as [specifically] provided [in other paragraphs] of thissection, all transactions incident to the conduct of business activitiesabroad engaged by any individual ordinarily resident in a foreign coun-try. . ., or by any partnership, association, corporation or other organi-zation which is organized and doing business under the laws of anyforeign country . . . are thereby authorized.186

This kind of clause would not have been particularly helpful in the gaspipeline affair since the regulations were already limited to specific goodsand a specific country of destination. The type of restraining clause foundin the Cuban Assets Control Regulations would have been much more use-ful since it leaves the door open to restraint in extraterritorial claims in caseof conflict with local law or foreign policy considerations:

Specific licenses will be issued in appropriate cases for certain cat-egories of transactions between U.S.-owned or controlled firms in thirdcountries and Cuba, where local law requires, or policy in the thirdcountry favors, trade with Cuba.137

Such a restraint does not amount to a recognition of the supremacy of in-ternational law whenever the latter is conflicting with a jurisdictional claimunder the regulation. Restraint in favor of the local law remains a matter ofcomity, not of international obligation.

134. 31 C.F.R. pt. 500 (1983).135. 31 C.F.R. pt. 515 (1983).136. 31 C.F.R. §500.541(a) (1983).137. 31 C.F.R. §515.55 9(a) (1983).

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Even if resort to such clauses in the pipeline regulations would nothave changed the basic United States position as regards extraterritorialjurisdiction and hence would not have prevented potential conflicts, the po-litically unpleasant effect of the unrestricted extraterritorial scope of thoseregulations would have been subdued. Such restraint could have been per-ceived in Europe as a sign of good will and could have opened the way tonegotiations capable of preventing the politicization of the pipeline dispute.

V. POSSIBLE SOLUTIONS FOR COMPARABLE DISPUTES IN THE FUTURE

Although several United States claims to jurisdiction seem to be ill-founded, their effects cannot be easily dismissed by European countries. Re-sort to countermeasures would not bring about any solution to a differencewhich is a source of many potential trade conflicts. Nor would a politicalcompromise be enough because it would not bind domestic courts. This situ-ation gives rise to a need for a form of dispute settlement that could bemade part of a permanent framework for continuing co-operation in imple-menting a set of international rules. These in turn would have to be flexibleenough to be readily accepted without questioning the principles of eachparty's legal policy. They would also have to be capable of evolution inresponse to improved collaboration over time.

Such a framework does exist. The Committee on International Invest-ment and Multinational Enterprises (CIME) of the Organization of Eco-nomic Co-operation and Development (OECD) has proven to be extremelyuseful with respect to problems involving multinationals in Western coun-tries." " Dispute settlement is of a political character, since compromise isreached through confidential negotiation between governments, businessand labor, but it has a major legal significance for it provides authoritativeinterpretations of the OECD Guidelines for Multinational Enterprises." 9

138. See ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, REPORT OF

THE COMMITTEE ON INTERNATIONAL INVESTMENT AND MULTINATIONAL ENTERPRISES, RE-

VIEW OF THE 1976 DECLARATION AND DECISIONS, OECD Doc. L (1979) 102 (Final) (1979)reprinted in 18 INT'L LEGAL MATERIALS 986 (1979) [hereinafter cited as OECD Review]; R.BLANPAIN, THE BADGER CASE AND THE OECD GUIDELINES FOR MULTINATIONAL ENTER-

PRISES (1977); R. BLANPAIN, THE OECD GUIDELINES FOR MULTINATIONAL ENTERPRISES AND

LABOUR RELATIONS, 1976-1979, 31-36 and 256-62 (1979).139. ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, Declaration on

International Investment and Multinational Enterprises, Press Release A(76)20, reprinted in15 INT'L LEGAL MATERIALS 967 (1976) [hereinafter cited as OECD Guidelines]. See Plaine,The OECD Guidelines for Multinational Enterprises, 11 INT'L LAW. 339 (1977); Schwamm,The OECD Guidelines for Multinational Enterprises, 12 J. WORLD TRADE L. 342 (1978);Vogelaar, The OECD Guidelines, in LEGAL PROBLEMS OF CODES OF CONDUCT FOR MULTINA-

TIONAL ENTERPRISES 127 (N. Horn ed., 1980); D. CAMPBELL & R. ROWAN, MULTINATIONAL

1984]


Observance of these rules is "voluntary and not legally enforceable,' 40

their substantive provisions are fairly flexible, but they represent a wideconsensus and are subject to follow-up and "clarification' 4'1 within an in-ternational framework.

The pipeline dispute was not submitted to CIME, however, most likelybecause it was not limited to specific problems of multinational enterprisesand because it raised sensitive issues of foreign policy that were considerednon-negotiable except within the framework of the Atlantic Alliance or ofSeven-Nation talks. ""' Nevertheless, the OECD provides an adequate fo-rum for many of the jurisdictional issues raised by the pipeline dispute andit may be used successfully to settle similar affairs before they give rise toheated political debate.

The OECD Guidelines represent the first attempt at regulating mul-tinational business activities on a flexible, multilateral basis through codesof conduct. 43 Instruments such as the guidelines may allow political-legal

ENTERPRISES AND THE OECD INDUSTRIAL RELATIONS GUIDELINES (1983); THE OECDGUIDELINES FOR MULTINATIONAL ENTERPRISES: A BUSINESS APPRAISAL (Institute for Interna-tional and Foreign Trade Law, Georgetown University, 1977). See also authorities cited supranote 138.

140. OECD Guidelines, supra note 139, Introductory Considerations, para. 6.141. ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, Revised Deci-

sion of the [OECD] Council on Inter-Governmental Consultation Procedures on the Guide-lines for Multinational Enterprises, OECD Doc. C (79) 143 (1979) reprinted in 18 INT'L

LEGAL MATERIALS 1171 (1979) [hereinafter cited as OECD Decision on Consultation]. "Clar-ification" results from consultation and negotiation over specific problems brought to the atten-tion of the CIME, but is abstractly worded pursuant to para. 4 of the OECD Decisions onConsultation which reads: "ICIME] shall not reach conclusions on the conduct of individualenterprises." See OECD Review, supra note 138, paras. 25, 26, 86 (1979).

142. The "Seven-Nations" refer to participants in the meetings of the major industrial-ized countries, like the Versailles Summit: Canada, France, West Germany, Italy, Japan, theUnited Kingdom, the United States, as well as the Commission of the European Communitiesand the country currently assuming presidency of the Council of the European Communities.

143. For information on the negotiation and implementation of codes of conduct, see R.WALDMANN, REGULATING INTERNATIONAL BUSINESS THROUGH CODES OF CONDUCT (1980);D. WALLACE, INTERNATIONAL REGULATION OF MULTINATIONAL CORPORATIONS (1976);Grosse, Codes of Conduct for Multinational Enterprises, 16 J. WORLD TRADE L. 414 (1982);Keohane & Doms, The Multinational Firm and International Regulation, 29 INT'L ORG. 169,187 (1975); EMERGING STANDARDS OF INTERNATIONAL TRADE AND INVESTMENT: MULTINA-TIONAL CODES AND CORPORATE CONDUCT (S. Rubin & G. Hufbauer eds. 1984); W. FELD,

MULTINATIONAL CORPORATIONS AND UN POLITICS (1980); R. HELLMANN, TRANSNATIONAL

CONTROL OF MULTINATIONAL CORPORATION (1977); LEGAL PROBLEMS OF CODES OF CON-DUCT FOR MULTINATIONAL ENTERPRISES, supra note 132; J. ROBINSON, MULTINATIONALS

AND POLITICAL CONTROL (1983); C. WALLACE, LEGAL CONTROL OF THE MULTINATIONALENTERPRISE (1982); Chance, Codes of Conduct for Multinational Corporations, 33 INT'LLAW. 1799 (1978); Coombe, Multinational Codes of Conduct and Corporate Accountability,36 Bus. LAW. 11 (1980); Tharp, Transnational Enterprises and International Regulation, 30

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settlement of disputes over conflicting claims of jurisdiction, although mostof them have been, or are currently being, negotiated on a worldwide leveland may therefore bring about inadequate solutions for disputes amongWestern industrialized countries. Moreover, in order to accomodate coun-tries at all stages of development, general rules are necessary. Specific ruleswhich thrive where negotiating countries have common concerns are notsatisfactory in this context.

Codes of conduct as progressively clarified by mutually-agreed imple-mentation, could represent a workable compromise between the existing"hard" law, which at times proves uncertain and the kind of inconclusivediplomatic solutions as exemplified by the epilogue of the pipeline crisis.

A. The Concept of Codes of Conduct

In addition to the OECD Guidelines, there are two codes of conductalready drafted on two specific subjects: the Tripartite Declaration of Prin-ciples Concerning Multinational Enterprises and Social Policy 144 and theSet of Multilaterally Agreed Equitable Principles and Rules for the Controlof Restrictive Business Practices,1 4

8 negotiated and implemented within the

INT'L ORG. 47 (1976); Wallace, International Codes and Guidelines for Multinational Enter-prises: Update and Selected Issues, 17 INT'L LAW. 435 (1983).

144. INTERNATIONAL LABOUR ORGANISATION, TRIPARTITE DECLARATION OF PRINCIPLES

ON MULTINATIONAL ENTERPRISES AND SOCIAL POLICY (adopted by the Governing Body ofILO, Nov. 16, 1977)(ILO Pub. 1977), reprinted in 17 INT'L LEGAL MATERIALS 423 (1978).See Morgenstern, Dkclaration de principes tripartite de l'OIT sur les entreprises multination-ales et la politique sociale: nouveaux problhmes, nouvelles mkthodes, 1983; Gfinter, The Tri-partite Declaration of Principles Concerning Multinational Enterprises and Social Policy,(ILO Sales Doc. 1981).

145. UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT, THE SET OF MULTI-

LATERALLY AGREED EQUITABLE PRINCIPLES AND RULES FOR THE CONTROL OF RESTRICTIVE

BUSINESS PRACTICES (Adopted April 22, 1980), UN Doc. TD/RBP/CONF/10/Rev.I (1980)reprinted in 19 INT'L LEGAL MATERIALS 813 (1980). Atkeson & Gill, The UNCTAD Restric-tive Business Practices Code: A Step in the North-South Dialogue, 15 INT'L LAW. 1 (1981);Brewer, International Regulation of Restrictive Business Practices, 16 J. WORLD TRADE L.108 (1982); Davidow, International Antitrust Codes: The Post-Acceptance Phase, 26 ANTI-TRUST BULL. 567, 578 (1981); Miller & Davidow, Antitrust at the United Nations: A Tale ofTwo Codes, 18 STAN. J. INT'L L. 347 (1982); see also ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, RESTRICTIVE BUSINESS PRACTICES OF MULTINATIONAL EN-

TERPRISES (1977); COMPETITION IN INTERNATIONAL BUSINESS: LAW AND POLICY ON RESTRIC-

TIVE PRACTICES (0. Schachter & R. Hellawell eds. 1981); Athos, Antitrust Law: United Na-tions Guidelines, 22 HARV. INT'L L.J. 405 (1981); Brusick, UN Control of RestrictiveBusiness Practices, 17 J. WORLD TRADE L. 337 (1983); Davidow, The UNCTAD RestrictiveBusiness Practices Code, 13 INT'L LAW. 587 (1979); Gill, The UNCTAD Restrictive BusinessPractices Code: A Code for Competition?, 13 INT'L LAW. 607 (1979); Oesterle, United Na-tions Conference on Restrictive Business Practices, 14 CORNELL INT'L L.J. 1 (1981).

1984]


framework of the International Labour Organisation (ILO) and the UnitedNations Conference on Trade and Development (UNCTAD), respectively.Two other far-reaching codes are still under negotiation, the United Na-tions Code of Conduct for Transnational Corporations1" and theUNCTAD Code of Conduct on the Transfer of Technology.1 7 Even if theybear different names and have been elaborated under different circum-stances, these codes obey a similar pattern, so as to warrant their inclusionunder a single category of international rules. They are multilaterallyagreed sets of non-compulsory provisions14 regulating both the activities ofmultinational enterprises and their treatment by home and host govern-ments. The provisions are augmented by stricter rules on intergovernmental

146. Intergovernmental Working Group on a Code of Conduct, Commission on Transna-tional Corporations, UN Econ. & Soc. Council, Report on its Special Session, UN Doc. E/C.10/1983/S/5, June 2, 1983, reprinted in 1983 UN ESCOR Supp. No. 7, Annex (Draft textas of May 21, 1982) [hereinafter cited as UN Code]. See, e.g., Coonrod, The United NationsCode of Conduct for Transnational Corporations, 18 HARV. INT'L L.J. 273 (1977); Rubin,Harmonization of Rules: A Perspective on the UN Commission on Transnational Corpora-tions, 8 LAW. & POL. INT'L Bus. 875 (1976); Asante, United Nations International Regula-tion of Transnational Corporations, 13 J. WORLD TRADE L. 55 (1979); Fatouros, Le Projet de

Code international de conduite sur les entreprises transnationales" essai prkliminaired'kvaluation, 1980 Clunet 5; Primoff, International Regulation of Multinational Corporationsand Business, 2 J. INT'L L. & ECON. 287 (1977); Wellens, Transnational Corporations: UNInvolvement Towards a Code of Conduct, 21 GERMAN Y.B. INT'L L. 442 (1981).

147. United Nations Conference on Trade and Development, Draft International Code ofConduct on the Transfer of Technology, Nov. 4, 1983, UN Doc. TD/CODE TOT/41, earlierversion reprinted in 19 INT'L LEGAL MATERIALS 773 (1980) [hereinafter cited as UNCTADCode]. See, e.g., Jeffries, Regulation of Transfer of Technology: An Evaluation of theUNCTAD Code of Conduct, 18 HARV. INT'L L.J. 309 (1977); Miller & Davidow, supra note146; Skelton, UNCTAD's Draft Code of Conduct on the Transfer of Technology: A Critique,14 VAND. J. TRANSNAT'L L. 381 (1981); Thompson, The UNCTAD Code on Transfer ofTechnology, 16 J. WORLD TRADE L. 311 (1982); COMPETITION IN INTERNATIONAL BUSINESS:

LAW AND POLICY ON RESTRICTIVE PRACTICES, supra note 145; H. PERLMUTTER & T. SAGAFI-

NEJAD, INTERNATIONAL TECHNOLOGY TRANSFER: GUIDE-LINES, CODES AND A MUFFLED

QUADRILOGUE (1981); Bulaji6, Transfer of Technology and International Law of EconomicDevelopment: Universal Code of Conduct or Dual Norms?, 1980 WORKSHOP HAGUE ACAD.

INT'L L. 256; Fairley, The UNCTAD Code of Conduct for the International Transfer of Tech-nology: Problems and Prospects, 18 CAN. Y.B. INT'L L. 218 (1980); McCulloch, TechnologyTransfer to Developing Countries: Implications of International Regulation, 1981 ANNALS

l10; Roffe, UNCTAD Code of Conduct for the Transfer of Technology: Progress and IssuesUnder Negotiation, 14 J. WORLD TRADE L. 160 (1980); Roffe, UNCTAD Transfer of Tech-nology Code, 18 J. WORLD TRADE L. 176 (1984); Thompson, The UNCTAD Code on Trans-fer of Technology, 16 J. WORLD TRADE L. 311 (1982); Wilner, Applicable Law and DisputeSettlement in the Transfer of Technology Code, 17 J. WORLD TRADE L. 389 (1983).

148. It is almost certain that the UN and UNCTAD codes will not be incorporated into abinding agreement, although this was the original conception advocated by developingcountries.

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co-operation and they are geared toward implementation and constant ad-aptation and improvement in response to specific problems.

Although not legally enforceable, the provisions of the codes are notdeprived of all legal authority.149 While remaining short of the bindingcharacter of "hard" international law, the codes may have far-reaching ef-fects, especially as regards incitation and legitimization of domestic law-making and policy, and standard-setting for court and administrative deci-sions. A reasonable degree of uniformity in implementation on the nationallevel may be achieved by multilateral review and consultation. These inturn may contribute towards international rule creation.

B. Relevant Provisions of Codes of Conduct

In the opinion of this author some of the following provisions, howevervague and flexible, could represent a starting point for the development ofinternational standards, which would gradually be tested by practice andultimately develop into formally compulsory rules. Their importance for thesettlement of future disputes should therefore not be underrated, even iftheir substance would probably be modified in accordance with their in-creasingly binding character.

1. Compliance With Local Law and Policies

The "good citizen" rule, that is, compliance with the law of the hostState as well as with its major public interests, is clearly a major element ofthe OECD Guidelines. In relevant part, the rule reads as follows:

... . The entities of multinational enterprises located in variouscountries are subject to the laws of these countries ...Enterprises should

1. take fully into account established general policy objectives ofthe Member countries in which they operate;

2. in particular, give due consideration to those countries' aimsand priorities with regard to economic and social progress,

149. See LEGAL PROBLEMS OF CODES OF CONDUCT FOR MULTINATIONAL ENTERPRISES,

supra note 132; Davidow & Chiles, The United States and the Issue of the Binding or Volun-tary Nature of International Codes of Conduct Regarding Restrictive Business Practices, 72AM. J. INT'L L. 247 (1978); Sanders, Implementing Codes of Conduct for Multinational En-terprises, 30 AM. J. COMP. L. 241 (1982); Schwartz, Are the OECD and UNCTAD CodesLegally Binding? 11 INT'L LAW. 529 (1977); Fikentscher, United Nations Codes of Conduct:New Paths in International Law, 30 AM. J. CoMP. L. 577 (1982).

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150

Nonetheless, important differences persist between Western and developingcountries in the most recent draft of the UN Code. These differences areshown by bracketed text:

6. Transnational corporations should/shall respect the national sover-eignty of the countries in which they operate and the right of eachState to exercise its [full permanent sovereignty] [in accordance withinternational law] [in accordance with agreements reached by thecountries concerned on a bilateral and multilateral basis] over its natu-ral resources [wealth and economic activities] within its territory.7. [Transnational corporations] [Entities of transnational corporations][should/shall observe] [are subject to] the laws, regulations [jurisdic-tion] and [administrative practices] of the countries in which they oper-ate. [Entities of transnational corporations are subject to the jurisdic-tion of the countries in which they operate to the extent required by thenational law of these countries.]8. Transnational corporations should/shall respect the right of eachState to regulate and monitor accordingly the activities of their entitiesoperating within its territory.1 51

It appears clearly from these crucial provisions of the UN Code that itis difficult to phrase the "good citizen" rule without raising issues of juris-diction, compliance with local standards and policies other than nationallaw, and the range of application of all the preceding rules with respect tothe enterprise as a whole.

The third relevant code, the UNCTAD Code, cannot easily be com-pared to the OECD Guidelines or the UN Code, which are general-purposeinstruments, since its subject-matter is different. Its basic principles, how-ever, are clearly in line with the provisions of the UN Code:

(iii) The principles of sovereignty and political independence ofStates (covering, inter alia, the requirements of foreign policy and na-tional security) and sovereign equality of States, should be recognizedin facilitating and regulating transfer of technology transactions.

(ix) Technology supplying parties when operating in an acquiring

150. OECD Guidelines, supra note 138, Introductory Considerations, para. 7, GeneralPolicies, paras. 1-2.

151. UN Code, supra note 146, paras. 6-8.

[Vol. 8


country should respect the sovereignty and the laws of that country, actwith proper regard for that country's declared development policies andpriorities . . .12

All the preceding provisions, including that of the UNCTAD code, aim toprotect the rights of host countries and technology recipients; no such provi-sions can be found as regards technology suppliers and home countries. Inthe pipeline dispute, had the necessity for foreign subsidiaries to complywith the "good citizen" rule been recognzed by the U.S. government itwould have avoided offending its European allies.

2. Provisions Treating an Enterprise as a Whole

The OECD Guidelines provide that:

8. [T]he guidelines are addressed to the various entities within themultinational enterprise (parent company and/or local entities) accord-ing to the actual distribution of responsibilities among them on the un-derstanding that they will co-operate and provide assistance to one an-other as necessary to facilitate observance of the guidelines. 5 '

This provision has no equivalent in the UN Code, which attempts to distin-guish provisions applicable to the enterprise as a whole from those concern-ing single entities.15

3. Jurisdiction

The OECD Guidelines put forward the principle that State jurisdictionis limited by international law, but do not provide for a specific conflict ofjurisdiction rule:

7. Every state has the right to prescribe the conditions under whichmultinational enterprises operate within its national jurisdiction, sub-ject to international law and the international agreements to which ithas subscribed. .... 155

152. UNCTAD Code, supra note 147, para. 2.2.153. OECD Guidelines, supra note 139, Introductory Considerations, para. 8.154. UN Code, supra note 146, para. l(b)-l(c).155. OECD Guidelines, supra note 139, Introductory Considerations, para. 7. On May

18, 1984, the OECD Council approved the outcome of the second review of the Guidelines, towhich provisions will be added to encourage Member States to consult with each other in caseof conflict arising from extraterritorial jurisdictional claims; the final text of the accompanying

1984]


Furthermore, it should be noted that this provision is immediately followedby the "good citizen" rule,'" so that is seems to be designed to protect hostcountry interests. Home State jurisdiction is more explicitly dealt with inseveral alternative wordings of the relevant provision of the UN Code:

58. [States should [use moderation and restraint in order to] [seekto] avoid [undue] encroachment on a jurisdiction more [properly apper-taining to, or more] appropriately exercisable by another State.] Wherethe exercise of jurisdiction over transnational corporations and their en-tities by more than one State may lead to conflicts of jurisdiction,States concerned should endeavor to adopt mutually acceptable [princi-ples and procedures, bilaterally or multilaterally, for the avoidance orsettlement of such conflicts,] [arrangements] on the basis of respect for[their mutual interests] [the principle of sovereign equality and mutualinterests.]10 7

This provision still appears more as a catalogue of possible conceptionsrather than as an attempt at reducing divergences. A solution would be toinclude settlement of concrete problems in the follow-up machinery, as sug-gested by another provision:

62. States [agree to] [should] consult on a bilateral or multilateralbasis, on matters relating to the Code and its application [in particularon conflicting requirements imposed on transnational corporations bythe countries in which they operate and issues of conflicting nationaljurisdictions] [in particular in relation to conflicting requirements im-posed by their parent companies on their entities operating in differentcountries] . . .s

It is not always easy to trace such alternative wordings back to their respec-tive sponsoring countries, and hasty inferences must be avoided at any cost.The "moderation and restraint" clause bracketed in paragraph 58 of thedraft UN Code, for instance, had been sponsored by the developing coun-tries' group but was qualified by another provision stating that"[el specially, an entity of a transnational corporation should not be con-

report by CIME will make an explicit reference to the very controls under the Export Admin-istration Act that triggered the gas pipeline dispute. MULTINATIONAL INFO, No. 10, at 14(1984). Publication of the revised Guidelines and of the report is imminent at the time ofgoing to press.

156. See supra text accompanying note 151.157. UN Code, supra note 146, para. 58.158. Id. para. 62.

[Vol. 8


strained by a foreign jurisdiction to violate the law or the declared policy ofits host country."1" This provision, which would have been of the utmostimportance if accepted, disappeared from the official compromise drafts,probably as a consequence of United States opposition;"" thus making thebracketed moderation clause applicable, so it seems, to both home and hostState jurisdictional claims.

The many alternative drafts of the UNCTAD Code chapter on juris-diction are confusing and deal principally with choice-of-law and arbitra-tion rules in contracts"' and not with compliance by technology recipientswith trade regulations retroactively applicable to existing and currently per-formed contracts, as was the case in the pipeline dispute.

C. Codes of Conduct as a Shield Against Excessive JurisdictionalClaims

The relevant provisions of the codes of conduct certainly represent anattempt at settling jurisdictional conflicts, in most cases in favor of the hostcountry. Home States are also to a certain extent shielded against hostcountries' demands regarding compliance by the parent company with thelocal law and policy of the countries where each subsidiary operates. Pro-tection of the host countries against extraterritorial claims by home coun-tries is certainly much stronger, however, even if this results more from thecombined effect of many specific provisions rather than from the generalrules quoted above.

This does not amount to saying, at least in the case of the OECDGuidelines, that resort to codes of conduct would always be detrimental tohome countries' interests. The most interesting feature of such codes is theirimplementation machinery, which may well provide an adequate forum forthe kind of dispute settlement that is much needed in Western trade andinvestment relations, and which might have provided a more acceptable so-lution for all parties concerned in the pipeline dispute.

The defusing of potential conflict that could be achieved by a morefrequent resort to CIME or similar organizations would, in the long run,bring together divergent conceptions and practices. It would then be possi-ble for all countries involved to find a general consensus towards develop-

159. Group of 77 Proposal for para. 56 (now para. 58) UN Doc. E/C.10/AC.2 (XIV).(Informal paper circulated at the 12th session of the Intergovernmental Working Group of theCommission on Transnational Corporations on a Code of Conduct, January 1981).

160. No official records of the negotiations within the Intergovernmental Working Groupare kept.

161. UNCTAD Code, supra note 147, Chapter 9 and Appendix A and F, as well asworking papers found in UN Doc. TD/CODE TOT/IC/R.2, Annex II (May 25, 1982).

19841


ment of a common legal policy with respect to jurisdiction over trade prac-tices. Codes of conduct would thus provide an intermediate step betweenthe present situation of conflict and a possible long-term evolution towardsan undisputed harmonization of trade law among industrialized countries.Thus, if codes of conduct had been applied to the pipeline dispute the resultmight have been a movement toward a greater understanding among theparties instead of the inconclusive epilogue which was, in fact, its progeny.

VI. CONCLUSION

The extraterritorial extension of the United States export controls onsupplies to the Euro-Siberian gas pipeline project was an unfortunate movewith respect to collaboration with European countries. Furthermore, it hasbrought to the limelight major differences in conceptions of legal policy andinternational law practice. These differences now appear to European publicopinion as linked to foreign policy tensions among Western countries, andconsequently are particularly sensitive.

Perhaps equally unfortunate was the diplomatic settlement of the dis-pute, which did nothing to resolve the legal issues raised. The U.S. exportcontrols were implemented and withdrawn on political pretexts, making itall the more difficult to reach an agreement over the legal problemsinvolved.

These problems belong to some of the most uncertain fields of interna-tional law, subject to a far-reaching evolution in international economic re-lations. Review of the existing law has not always allowed us to find clear-cut solutions to the issues involved. In several cases, however, the underly-ing conceptions of United States practice do not find firm support in inter-national law. The European reaction to the pipeline controls seems to bemore in line with present-day international law, even if many Europeancountries and the Community itself frequently resort to extraterritorialclaims to jurisdiction to protect their own interests. As long as the invest-ment and technology balance shows a European deficit against the UnitedStates, however, the position of the United States will be a likely source ofpotential conflict.

A judicial or arbitral settlement would avoid political considerationsand provide a clearer view of the real issues, but it would tread on unstableground and would have to proceed cautiously. This makes judicial or arbi-tral settlement impractical for disputes similar to the pipeline affair.

Thus, the pipeline dispute presents a compelling case for improving co-operation among industrialized countries towards codes of conduct whichwould lead to gradual and flexible harmonization of their respective prac-tices. Such a solution would be easier to reach than a more traditional one,since States are reluctant to bind themselves with "hard" rules in trade

[Vol. 8

1984] JURISDICTIONAL CODES OF CONDUCT 47

matters, but would still have major legal significance and achieve a greaterdegree of consistency in foreign governmental action than would a merelypolitical settlement.

Since one of the principal purposes of international trade law is pre-cisely to prevent erratic national actions detrimental to the common inter-est, such a solution ought seriously to be considered.


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